No More Learning

Consumption may flag under these conditions as the current account heads toward a deficit and the capital account inflows pause from their recent record pace. Commodity export prices are off with the country a net petroleum importer and relying on heavy equipment purchase abroad. Foreign holdings of local debt may dip below their post-crisis 30 percent share as the central bank continues to purchase large amounts for system stability and liquidity management purposes. An external sovereign bond was easily placed in January, and private direct and portfolio investors are asked to provide one-quarter the estimated 2 trillion rupiah funding envelope for electricity, port, and road projects through 2015. A March review by rater S&P points out that energy tariffs are “low, inflexible and non-transparent. ” The PLN monopoly unilaterally renegotiated contracts, which as a whole are poorly enforced according to the World Bank’s Doing Business measure. The new land acquisition statute is designed to slash costs and timing, and infrastructure guarantee and public-private partnership mechanisms have been upgraded.

Domestic state banks remain the dominant long-term money source, and the burgeoning Islamic sukuk market is well suited for risk-sharing as an alternative. The agency predicts FDI in these critical sectors could double as a share of GDP to 4 percent with “efficient administration,” but notes that lasting confidence will entail a series of policy and practical steps. The neighboring Philippines under President Aquino likewise unveiled a PPP push as the fiscal gap continues to come in under 3 percent of GDP. It has signed on to the US government’s Partnership for Growth aid effort which emphasizes power supply revamp, and exchange-listed privatizations are foreseen in the mix. Overseas worker remittances are intact as anti-corruption moves try to break from the past and prove their firmness.







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Greater China’s Hard Land Lumps
2012 April 18 by admin

Posted in: Asia
Hong Kong shares slackened on the dramatic arrest on bribery charges of the Kwok brothers whose firm has controlled a commercial and residential land empire for decades, just a week after self-declared populist Leung was elected chief executive in a tightly-managed race following a scandal involving the previous candidate Henry Tsang which flaunted ties to the island’s wealthy. Widening income inequality and poverty have suffused political debate amid the post-crisis property boom, and the new leader has promised to confront tycoons’ power despite his early role in supporting breakneck housing expansion. Developer stocks have long been under the microscope as the Monetary Authority attempts to brake lending alongside Beijing’s existing curbs that were reiterated at the latest gathering of top officials before the upcoming reshuffle. The enclave still suffers from a shortage of affordable flats underscored by the saga of Mr. Tang’s illegal wine cellar which itself was bigger than typical units. The economy may only grow 1 percent this year on re-export retrenchment as the outgoing government tries to find additional revenue for small-business and social spending. The soft patch and rich-poor divide have resurrected calls for universal voting and re-examination of the dollar peg as the renimbi again noticeably slips against the greenback for the first time since the mid- 1990s Asian financial crisis. In Taiwan following the re-election of President Ma electronics and manufacturing sales are also drifting and to pay for fiscal stimulus his team may impose capital gains tax. Investor wariness increased over the move in the wake of sudden Chinese naval activity in the area and several mooted joint banking ventures across the strait. Oil import costs further hamper prospects and the central bank may consider cuts in already low benchmark rates.

On the mainland the future politburo composition is in doubt with the unexplained purge of Chongqing boss Bo amid coup and Mao-era Cultural Revolution return warnings. The military has gotten a hefty budget rise and citizen revolts against provincial official land grabs and arbitrary treatment have brought in consensual replacements. Hong Kong brokers who have been idle even with reduced lunch breaks enjoyed a burst of activity with China Minsheng Bank’s $1. 5 billion capital raising, although it is believed to have large local government loan exposure which regulators wish to extend without write-downs over the medium term. One-fifth of these portfolios at close to $300 billion have been improperly classified in the safest category, they stipulated at the same time. Municipal pension funds have also been criticized for riskier allocation against established guidelines, and authority to issue debt will be confined to pilot efforts as debris is cleared from the hidden crash.

Mauritius’ Offshore Center Vertigo
2012 April 18 by admin

Posted in: Africa
Mauritian stocks continued lethargic as the global business corporation sector absorbed the implications of the Indian budget which seemed to herald further offshore-registered investor tax scrutiny for both current and past allocation. Tourism has already slowed on Europe’s troubles, putting the 4 percent economic growth forecast in jeopardy on inflation around the same level, with inflows also needed to bridge the 10 percent of GDP current account deficit and keep international reserves at just 4 months’ imports above the danger zone. Good share performance last year brought portfolio infusions spurred as well by capital gains levy removal, although the budget gap swelled toward 5 percent of output. With private credit demand slumping, special state loan facilities for small business could be activated, adding to the fiscal weight of numerous government-run enterprises which represent 15 percent of GDP. Interest rates are marginally positive, and rupee appreciation against the euro and pound has eased. Officials have unveiled an infrastructure upgrade program consistent with reducing public debt to 50 percent of national income by end-decade, and are considering pension revamp and steps to regain lost standing in the World Bank’s Doing Business rankings. Banks are well-capitalized and profitable, boosted by the recent advent of deposit insurance but ties to non-resident borrowers and related insurers remain murky, the IMF finds in its latest Article IV review. The central bank and securities market regulator should better pool risk information given lenders’ large government debt holdings and their status as big exchange listings, it suggests.

South Asian entities concerned about Gulf exposure during the Arab spring have looked at relocation to the island, but Dubai, with UAE stocks up double-digits, has offered reassurance of political and financial stability despite on-line petitions against the ruling family and debt rollover concerns still focused on the shipping unit of DW and other shaky issuers. The DIFC is seeking a loan to cover upcoming $1 billion bond redemption and the free trade zone is likewise in talks with a bank consortium to repay a $2 billion sukuk due at year end. Emirates NBD, the chief domestic creditor, has itself just floated $1 billion in 5-year dollar bonds after placing a smaller debut note in the yuan-denominated Hong Kong dim sum market. They were priced at 350 basis points over mid-swaps, reflecting an investment-grade rating and contrasting fortunes with Bahrain, where CDS rates are higher and an investment firm has just defaulted as violent demonstrations recur. Offshore banking operations have diverted to safer regional jurisdictions, and without oil the fiscal deficit on a bevy of social spending promises will hit 8 percent of GDP as the center tries to hold.

The Vienna Initiative’s Extended Strains
2012 April 10 by admin

Posted in: Europe
As official and private sector parties grapple with a specific formula to adapt the 2009 Vienna Initiative’s voluntary bar on bank cross-border “disorderly unwinding,” separate working groups have reported on NPL and Basel III-related complications still frustrating Emerging Europe operating and resolution frameworks. The bad loan average tops 10 percent, which is probably understated due to missing data and low estimates, and is worst in the Southeast and Hungary with its additional Swiss franc mortgage load. Payments have been adjusted without interest capitalization, and portfolio sale and collection outsourcing are infrequent. A half-dozen countries have revamped business and household bankruptcy procedures and introduced out-of-court settlement, but they are the exception. Collateral enforcement is cumbersome and lengthy, personal insolvency is unrecognized, loss provisions are not tax-deductible, prudential loan classification is suspect, and distressed-asset markets are lacking, according to regional experts. Banks hesitate to take action on their own fearing competitive ramifications, and confidentiality and secrecy custom and practice inhibit progress. The BIS standards will go into EU capital adequacy and liquidity directives that for Central and Eastern members must accommodate high foreign ownership stakes, shorter-term wholesale liabilities, and less-advanced money and bond markets. Tier-one equity is typically good with limited hybrid resort, and minority interests when consolidated at the group level increase the capital cushion. The analysis suggests foreign currency risk be explicitly included in set-asides, and that the small-firm impact of ratios must be weighed as an overriding factor. Liquid assets should be broadly defined, and parallel macro-prudential measures harmonized between home and host jurisdictions. The new European Banking Agency should assume a lead technical role, and the so-called counter-cyclical buffer could be modified in light of emerging market member differences. The supervisor “colleges” should be regularly convened under its auspices for information-sharing and rule alignment, the paper advises.

The research points out the difficulties’ lingering toll on economic growth, which is anemic outside “overheating” Turkey. There Citibank is shedding ownership in giant Akbank, a main exchange listing, to meet post-rescue US Federal Reserve demands. In Hungary, Austrian parents continue to report network shrinkage and losses, although Raffeisen spurns talk of the need for a capital increase with overall pre-tax profit. In their outlying realms headquarters executives have tried to convince investors the situation has bottomed, especially when compared to Spain’s severe periphery case, where the government may again inject cash to salvage the property-stuffed cajas. Russian state banks in turn may be on the acquisition march westwards toward troubled pockets after earlier buying their own Vienna outpost in the wake of a record $7 billion sovereign Eurobond placement. 1000 investors participated with a 30-year tranche available for an extended pan-European bet.

Private Equity’s Middling Middle Markets
2012 April 10 by admin

Posted in: General Emerging Markets
The Emerging Market Private Equity Association released 2011 fund-raising and deal-making totals showing continued BRIC and large vehicle concentration, with smaller destinations and capital size still overlooked. Its slice of the global new commitment pool was 15 percent at almost $40 billion, a multi-year high, with LPs seeking long-term exposure that may be confined through listed shares. Asia and specifically China has drawn three-fifths of the amount, with renimbi-denominated offerings the majority from dedicated sponsors prompting over $15 billion in allocation. India took in almost $3 billion and penetration at 0. 3 percent of GDP is double China’s. Brazil funds were all mobilized locally and represented near 20 percent of the aggregate at $7 billion. Each launch was $1 billion-plus, reflecting a preference for larger deals which extends to the broader universe, where average GP scope was twice 2010’s at $300 million while the number of entrants fell 20 percent. Median investment size was $15 million, although Brazil’s was triple that figure. Russia/CIS and MENA were still stifled by regional crises with respective tallies of $135 million and $425 million. Sub-Sahara Africa’s total slipped from $1. 5 billion the previous year, with South Africa absorbing about one-third. The US and Europe remained the world leaders, with the former’s $95 billion in inflows far outpacing other developed markets. The trade group argues that Brazil and China are not at “saturation point” with unmet mid-market needs, and recalls the multi-regional push accompanying the $65 billion collected pre-crisis in 2008 that could reactivate over the medium-term.

Asia-sourcing and demand will continue to drive country and company stories in the coming months as the hard versus soft-landing debate coincides with Beijing’s party leadership transition. India may allow more favorable tax treatment for authorized venture capital operations in the latest budget, and Korea after spurning foreign involvement with controversies over bank and high-tech acquisitions following its late 1990s crash is revisiting the position so Seoul can claim world financial center status. Frontier backers like Franklin Templeton and Leopard Capital are promoting potential in Indochina and elsewhere, with Cambodia, which carries a B sovereign rating, joining Laos in stock exchange opening as an exit. This ignored swathe offers faster 5-plus percent GDP growth and Bangladesh, Sri Lanka and Vietnam are mid-size weightings on the MSCI benchmark index. To beckon foreign investors Dhaka has removed capital gains tax, and development lenders have a big portfolio of reconstruction projects for Sri Lanka’s war-torn north. Nepal and Papua New Guinea after civil strife feature energy and mining endowments and working equity markets that may pass private fancy.

The West Bank-Gaza’s Bleary Blockades
2012 April 4 by admin

Posted in: MENA
Despite a blip in Palestine Stock Exchange interest mainly from Gulf investors exiting Egypt, the World Bank’s annual West Bank and Gaza donor report underscored the severity of “fiscal crisis” with a recurring $1 billion deficit only half plugged by aid and commercial bank borrowing. The double-digit growth pace from a low base will not repeat as Israel’s access and trade restrictions remain intact, and business and regulatory reforms languish especially around land registration. The Palestinian Authority’s wage bill rose 5 percent in 2011 on greater security force employment. Tax and customs revenue collection were below target, as cumulative domestic debt reached over $1 billion, “at the limit” of available supply. Capacity may be further constrained by proposals to impose capital gains and savings account levies alongside ongoing efforts to overhaul payer exemption and reporting practices. The public pension system is currently insolvent, and steps to eliminate arrears and introduce “parametric changes” were missing in recent years. The civil service takes half of regular spending, with salaries absorbing twice the MENA average as a fraction of national income. Reconciliation between the respective governing parties in the twin territories as outlined by their leaders could reduce overlap, but administrative structures are unwieldy despite data and information processing strides, the document comments. The combined West-Bank Gaza economy will increase 7 percent in 2012, with per-capita incomes around the end-1990s level. Gaza construction spurted after blockade easing with first assistance-related and then private-sector equipment let in, while the West Bank’s pillars are defense and government. Unemployment continues at 25 percent, and after the initial wave, few Israeli investment restrictions have been loosened. Border closures and limits on dual-use items with potential military application extending to telecommunications are external obstacles, but dated and inconsistent internal company and transactions laws are also market-unfriendly.

The monetary authority which is assuming central bank functions is moving to impose Basel II standards, and non-performing loans are under 5 percent of the total. The formal payments network is unable to transfer Israeli shekels into Hamas-controlled Gaza which “strengthens unregulated money changers,” in the paper’s view. Electricity, water and sanitation are critical unmet infrastructure needs demanding $500 million in funding. Energy disruption has begun to affect Israel as well with the damage to Egypt’s gas pipeline contributing to $4 billion in economic losses, according to the Finance Ministry. Bond yields have risen on tensions with Iran as foreigners have dumped short-term Makam holdings now subject to tax. With 2 percent inflation, benchmark rates have stayed the course with the shekel flat against the dollar. Projected GDP growth is 3 percent, but the OECD recently criticized high public debt and poverty ratios which restrict industrial and labor maneuver.

The IDB’s Forked Road Determination
2012 April 4 by admin

Posted in: Latin America/Caribbean
The Inter-American Development Bank’s annual meeting report on “Forking Paths” matched participant sentiment as souring on stalwart destinations Brazil and Mexico was offset by clamor for infrequent capital market players including South America’s poorest economy Bolivia, which tapped underwriters for a $500 million sovereign bond not attempted for almost a century. The dichotomy elaborated 2011’s theme of One Region, Two Speeds, with average 3. 5 percent GDP growth a fluid forecast depending on European crisis and China slowdown outcomes. For commodities, metal more than agricultural prices are likely to fall, while the composition of capital inflows as heavily banking and portfolio-related is also worrisome given historical crash tendencies despite improved oversight and macro-prudential efforts. Fiscal space is constrained to address emergencies as structural deficits are higher than in 2008-09, and inflation-targeting regimes have become confused with central banks’ profusion of direct and indirect tools that have tightened policy since the original episode. Foreign reserve increases have translated into lower external debt ratios, but private sector balance sheets may be leveraged. European bank pullback is mitigated by the local retail base, but asset shedding to meet stricter minimum equity standards could have “significant effects. ” Often these institutions hold large positions in domestic debt markets and selloffs could suddenly raise borrowing costs at home and abroad, the survey warns.

Brazil continues to raise the currency war cry with extension of the 6 percent tax to 5-year fixed-income flows, as jaded investors seek proof through public pension and other reform initiatives that the strategy is not diversionary. Mexico has benefited from a contrasting hands-off stance on the peso that has been the year’s top performer and US rebound, but the election cycle has begun as foreign ownership is 40 percent of long-term bonds. A PRI presidential victory remains consensus opinion despite gaffes by standard-bearer Perez Nieto, but parliamentary control could again be fragmented. Argentina’s moves against oil giant YPF and to revamp the central bank law to allow greater reserve access have further alienated investors betting on a softer line after President Fernandez’s re-election and health scare. While regional sovereign ratings are flat overall, Bolivia is among a handful going to market with a positive outlook. Costa Rica, El Salvador, Guatemala and Trinidad and Tobago all plan external issues after a lengthy pause. New Guatemalan President Perez Molina must roll over an outstanding instrument due next year, and has emphasized pro-business and anti-crime approaches. Trinidad and Tobago’s Stabilization Fund has $4 billion on hand from energy proceeds, but a $500 million tap is in the works for diverging hydrocarbons and financial services ambitions.

Hungary’s Piquant Goulash Tasting
2012 March 30 by admin

Posted in: Europe
Hungarian debt and CDS yields again crept up as the EU followed through on its convergence aid suspension threat unless constitutional and policy changes are enacted by June. IMF backup loan talks stayed in limbo in advance of the organization’s spring meeting, and the OECD weighed in with a critical report highlighting recession and financial stress. It cited high sovereign rollover needs the next two years as “weak recovery” appears in the second half. Private sector debt reduction has hurt demand and investment is “subdued” due to uncertainty and the imposition of the “sizable bank tax and credit rationing. ” Gross fixed outlays are down 25 percent since 2008 and medium term prospects are “bleak” without productivity gains to outstrip the aging population. The December 2011 burden-sharing plan to ease household foreign currency exposure insufficiently targets distressed borrowers, the agency believes. The Szell Kalman fiscal regime proposed in the Orban Administration’s early days did not define detailed cuts in public spending at near half of GDP, with local government employment overcapacity a key area. State transport companies, as evidenced by the Malev airline’s recent bankruptcy, continue to sustain heavy budget losses. Energy and property tax increases should replace special crisis levies and social security savings are also available. The new economic stability act sets a responsibility rule for mid-decade, but the council to enforce it is too politically-charged and multiple exceptions may counter the original intent. Monetary policy as well is no longer a technical exercise with central bank officials subject to spontaneous dismissal and replacement contrary to standard Brussels norms. Bank and personal balance-sheet cleanup must occur simultaneously to revive the intermediation function, but may currently conflict with mortgage forgiveness outcomes which have favored early repayment and caused foreign-run groups to “freeze or downsize” networks.

Objective criteria for the program such as negative equity and loan-to-income qualifiers are lacking, and tax write-offs could assume a greater role in loan restructuring. Recapitalization may be needed and a new financial services transactions charge under consideration may hamper the effort. Half of marketable debt is in non-resident hands with shorter maturities, and forint depreciation has essentially absorbed the windfall from private pension transfer. Many sectors including law enforcement and mining receive privileged retirement benefits not subject to recent general curbs on early access. Loan contracts are prone to “unilateral modification” and the credit information systems are “undeveloped,” according to the update. Regulators should be equipped with more autonomy and power under coordination from the overall stability board. In a separate assessment of state-run health care, the examination cited the absence of private capital returns and delivery and quality factors, and called for better organization and fund use to stir the pot.

Nigeria’s Wistful World Bank Wallop
2012 March 30 by admin

Posted in: Africa
Nigerian stocks were unmoved from their modest upturn as Finance Minister Okonjo-Iweala, a former senior World Bank executive, was nominated by African representatives as a candidate for president of the organization as incumbent Robert Zoellick departs at end-June. She was grateful for the support but did not actively campaign as her team strives to regain momentum from the petroleum subsidy removal backlash. Under a companion adjustment, power rates will also rise, as anti-corruption crusader Nuhu Ribadu will lead a task force investigating oil revenue leakage. A landmark bill to split the commercial and regulatory functions of the National Petroleum Corporation and clarify the regime for foreign and private participation is a top economic agenda item to be passed this year, officials insist. Inflation has eased with less drastic subsidy reductions than originally proposed, and with buoyant world prices one-third of the budget deficit will be covered by the excess crude account. The naira has calmed in the 155 to the dollar range on $35 billion in international reserves. Institutional investors are creeping back to equities with big listed banks slowly disengaging from previous peril, but retail players, burned on margin loan overextension, remain shy. A congressional investigation into the stock market’s post-crisis collapse degenerated into a shouting match between the committee chair and enforcement head over alleged malfeasance in their respective capacities. The exchange chair at the time was forced to resign over fraud and mismanagement charges, and related criminal and civil cases are still in course. Politicians were widely accused of condoning and profiting from improper broker behavior and in a rare guilty plea a state governor who fled the country admitted to $250 million in illicit funds that may have come partially from such involvement to avoid a UK jury trial.

With last year’s lifting of restrictions, foreign investors have returned to the high-yield Treasury market, especially as worries increase over next-door Ghana heading into elections. The presidential contenders who have faced off before are relatively tied in voter surveys, and spending is expected to repeat a 5 percent of GDP budget deficit even with new offshore oil revenue. Yields have jumped 100 basis points with the central bank hiking rates to keep inflation in single digits and the cedi firm. Nerves have also frayed in the West African Franc zone closely tied to Europe with regular devaluation rumors and increased domestic debt placement on the regional bourse to bridge fiscal gaps. The interbank market is undeveloped and non-performing loans are at 15 percent, according to the IMF’s latest check. GDP growth and inflation were set to improve with Cote D’Ivoire’s reconstitution, but a military coup in Mali has again upset the mix and the World Bank, regardless of prospective heads, has cut ties in another blow.

Korea’s Breakthrough Trade Trudges
2012 March 27 by admin

Posted in: Asia
Korean shares retrieved momentum from activation of the free trade agreement with the US, despite a monthly current account deficit on softer exports and confusion over an apparent nuclear testing moratorium for food aid deal with the North’s new leader. Representatives from Washington and Pyongyang meeting in Beijing struck the arrangement following a period of saber-rattling across the demilitarized zone as the respective sides girded for transition. For upcoming elections, candidates have urged Seoul to take a wait-and-see approach as joint-venture operators seek to revive light manufacturing and tourism projects. The powerful chaebol conglomerates after failed attempts in the past remain reluctant to re-engage especially as they come under criticism at home for poor governance and unfair competition with small business. They have withdrawn from the baked goods business dominated by shopkeepers after lawmakers expressed outrage, and top executives are under indictment for alleged embezzlement and insider transactions which contribute to “discount” single digit p/e valuations on the exchange. GDP growth, aided by front-loaded fiscal priming, is at 3. 5 percent and the central bank has been on hold as higher oil prices again threaten the inflation target. Regulators slowed the pace of household credit expansion to 5 percent in the last quarter as banks have tightened standards and consumption may suffer from the hangover. European lenders continue to cut their claims on overall external debt of $400 billion, with companies on track for a record $30 billion in bond issuance this year to rollover maturities. State-owned utilities are raising money for overseas acquisitions, and foreign investors have jumped into local government paper for a 7 percent share despite the re-imposition of withholding tax. They get yield pick-up and follow new central bank debt buyers including China and Switzerland.

The Chinese relationship is part of burgeoning bilateral securities ties which recently featured allotment of a mainland QFII quota for the $300 billion National Pension Fund in line with its regional equity diversification strategy. The won has fluctuated frequently with such capital movements and global risk appetite, and the authorities have intervened regularly although their hand is less visible than in the 2008-09 squeeze. Korean instruments may soon appear in the quarterly trading favorite tally of industry group EMTA, following Hong Kong’s sudden popularity as a yuan proxy vehicle. According to its 2011 annual report volume was off 5 percent to $6. 5 trillion with two-thirds dedicated to local activity. Of the total, corporate and Eurobond segments are almost equal, with Latin America and Europe the top regions. In Asia, Indonesia has been a large exposure but with the central bank now holding 12 percent the amount outstanding the trigger is on a short fuse.

The EU’s Astray Accession Axis
2012 March 27 by admin

Posted in: Europe
New holders of a privately-placed Slovak sovereign bond shuddered as the populist Fico slate regained power with a clear party majority obviating coalition resort on a platform to abolish the flat tax regime and punish commercial and official corruption. The center-right government, which had initially withheld its EFSF contribution on philosophical grounds soon after joining the euro, had slid in opinion polls despite 3. 5 percent GDP growth last year, as recession in the neighboring Czech Republic subsequently spilled over and a massive spying scandal was uncovered from the grouping’s previous time in charge. Its head, a former university professor with libertarian leanings, also alienated traditional politicians with unwillingness to compromise even though her core support was limited. The outgoing Finance Minister has warned of a return to fiscal laxity after the 3 percent of GDP deficit compact goal is met in the coming months. In Prague authorities have in turn shelved further pension reform and other adjustment plans to combat the flat economy now outpaced by 3. 5 percent consumer inflation after VAT and energy cost hikes. The central bank has been on hold with the currency firm around 25 to the euro, while the current account deficit has improved slightly despite slowing exports as offsetting FDI will cover almost the entire gap.

Ex-Yugoslavia components Croatia and Serbia have recently been approved for longer-term EU membership after overcoming both debt and diplomatic hurdles. In the former in January two-thirds of voters approved entry on low turnout, with the single currency already dominating 80 percent of banking system activity. Output will contract this year on a slim trade base and slumping domestic demand, and the budget deficit will stay at 4 percent of GDP amid a struggle to retain ratings agencies’ bottom investment-grade mark. Italian banks dominate the sector and are in deleveraging mode. A new government was just voted in, with senior officials from the previous one facing prosecution for bribery and embezzlement. Unemployment is near 20 percent and donors have committed $2 billion in infrastructure funds in an attempt to provide jobs. Serbia’s entry timetable is likely more delayed until mid-decade after an impasse over Kosovo relations was temporarily resolved following the capture of accused war criminal Karadzic. GDP growth is an anemic 1. 5 percent on inflation four times steeper, as the IMF precautionary program has been frozen on failure to meet fiscal targets heading into elections. The dinar has plunged to 115 to the euro, and 6-month T-bill yields are over 10 percent. Unlike in Croatia the stock market is up on privatization mandates which have been dashed in the past, but Brussels may now emphasize as an updated Belgrade sanction.

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Francophone Africa’s Stung Barracudas
2012 March 23 by admin

Posted in: Africa
Senegal’s external bond and main regional bourse share Sonatel sputtered as President Wade, after receiving judicial clearance to run for a third term, was forced into a second-round runoff with a former prime minister. He had previously assured backers of easy victory as the “barracuda among little fish” following the popular singer Youssou N’Dour’s ballot rejection for insufficient voter signatures. The incumbent’s insistence on prolonging his tenure in defiance of constitutional provisions has angered donors in Europe and the US, which has awarded a large grant under the Millennium Challenge Corporation that emphasizes good governance standards. He has assigned power to his banker son in a potential succession move as economic management strives to diversify from traditional commodities and tourism into high-tech services. State spending has been criticized by the business community and development lenders alike, with a showpiece independence monument in the capital a visible illustration of fiscal overreach. Before the decision to allow re-election, street demonstrations had mounted against power shortages and food costs, as immigrants returned home from Europe’s crisis facing slim employment prospects. After a record 2011 for Sub-Saharan international issuance at $12. 5 billion another bond placement was contemplated under peaceful transition and rising agricultural export prices which both may now prove elusive. Oil giant Gabon, with a BB- credit rating, in contrast just completed its own disputed parliamentary contest with $1 billion available to park in a sovereign wealth fund for infrastructure and other purposes. President Bongo’s party got all but 5 of 120 seats despite a 75 percent abstention rate. Ample budget and balance of payments surpluses will underwrite the premier African football event, which has generated near-term outlays to quell popular discontent.

In Cote d’Ivoire legislative polls were completed about the same time with the Outtara coalition gaining a clear majority, but the ICC in the Hague has stepped up its investigation of civil war crimes which may target administration allies and members. Defaulted bonds had rallied toward 60 cents to the dollar but corrected on the likelihood of indictments and delays in resuming symbolic coupon payments. Finance Minister Diby informed investors that an installment is seen toward mid-year on the $90 million already accumulated in arrears. Full normalization is not expected until attainment of the HIPC completion point, which requires good performance under the new IMF program including cocoa and coffee sector overhaul.
According to official presentations, the primary fiscal balance will remain negative through mid-decade, with shortfalls to be partially bridged by commercial borrowing on the West African securities market where pricing may sharply sting.

Mongolia’s Missed Mining Veins
2012 March 22 by admin

Posted in: Asia
Mongolian debt and equity frontier index entry ambitions were dashed after the landmark Tavan Tolgoi 30 percent coal mine flotation was postponed from this quarter until September, in position as the biggest and most widely held listing. At an estimated 6. 5 billion tons, it is a vast untapped deposit and the state company owner working with foreign contractors has already agreed to supply China. One-tenth the offering is to be distributed to all citizens, a move critics, recalling early post-communist voucher experiments, have dismissed as an election year ploy. Global underwriters competed tenaciously for the mandate on the expectation of high investor interest and potential sale through foreign exchanges, with Hong Kong and London already hosting natural resource companies. The delay followed a critical IMF report under a staff monitoring program citing overheating and commodity price risk. GDP and private sector credit growth are running 20 percent and 50 percent respectively, and inflation too continues at a double-digit pace. Spending, including 3 percent of GDP in subsidized loans to small enterprises and cashmere processors, will breach fiscal responsibility law provisions, and a recently-created Development Bank nominally dedicated to infrastructure funding could drain additional sums. International reserves are at a record $2 billion and bolstered by a renimbi swap line with China’s central bank, but currency appreciation against the dollar along with copper export values have tapered. Monetary policy has been tightened with interest rate and reserve requirement hikes, but real rates remain negative and macro-prudential steps in particular to moderate rapid mortgage lending are absent. NPL numbers understate the problem and related-party exposures with greater systemic consequences are heavy in the Fund’s view. It laments “discipline erosion” since the post-2008 emergency standby arrangement was completed, and sees parallels with the boom and bust cycle then which Mongolian officials argue they have tried to tame following both developing and industrial economy “best practices. ”

In contrast with the reprise there the IMF at the same time declared progress in the case of Iceland’s extrication from its spectacular banking system meltdown. GDP growth has finally turned positive and fiscal consolidation is proceeding despite government debt still at 100 percent of output. Capital controls have been extended through next year to allow more time for household and corporate balance sheet restructuring, final court decisions on currency and inflation-indexed instruments, and financial and operational repairs at the remaining three main commercial banks. The state mortgage fund’s solvency is still in doubt, local government borrowing poses a further burden, and overall prudential supervision suffers from enforcement and transparency gaps leaving scope for future eruptions, the review concludes.

Sub-Sahara Bonds’ Reluctant Candidates
2012 March 19 by admin

Posted in: Africa
Despite the launch of tracking indices and donor and legislative authorization, new African sovereign external debt issuers remain on the sidelines as plans encounter regular hitches. Kenya has previewed a flotation for years and the latest complications include upcoming elections, the Finance Minister’s resignation after indictment for fomenting tribal violence, and the central bank governor’s defense of monetary policy conduct in a parliamentary inquiry probing potential dereliction of duty. Inflation is stuck above 15 percent as the shilling heads toward a record low 90 to the dollar. The B-plus rating obtained in 2010 is in jeopardy with international reserves only sufficient for 3 months’ imports after a 50 percent boost in an initial $500 million IMF emergency credit line. The 5 percent GDP growth forecast will be difficult under drought conditions, and energy and transport infrastructure are in urgent need of modernization, according to the latest review despite additional funding through tax-exempt dedicated bonds aimed at both local institutional and retail buyers. Bank credit risk has heightened with dramatic interest rate swings and VAT application will be vital to a better fiscal position. The state’s stake in the stock exchange will be reduced with demutualization, but self-regulation still lags after a series of broker scandals and closures that continue to dent investor confidence. Private equity firms have decried the lack of exit through public listing under this cloud and preferred to concentrate elsewhere on the continent. Next-door Tanzania too had been in line to debut after “graduation” from Fund lending, but recently signaled desire for a precautionary facility after a period of severe weather and power outages. GDP growth is in the 6 percent range but electricity prices drove inflation to 20 percent last year. The budget deficit is at 5 percent of GDP and tight trade and tourism ties with Europe could combine with the energy crisis to deliver further economic blows.

Zambia’s copper-oriented output is up at the same clip and inflation is in single digits, but the current account surplus is down on heavy imports and FDI may be in danger with a shift in mining royalty provisions by the new administration. European-owned banks have cut export credit as “traditional concessional financing phases out,” according to the Fund. High poverty and limited formal intermediary access for small and midsize firms are lingering obstacles that could be addressed with prudent management of debt proceeds, it stresses. In a cautionary tale the lender carried out its regular review for Seychelles which sought a program after defaulting on an inaugural placement. A floating exchange rate shock was administered in its wake and economic growth is just 3 percent as the government struggles to unload the airline and other assets to meet rescheduled commercial payments absorbing island daydreams.

The Americas’ Summit Leaning Ledges
2012 March 19 by admin

Posted in: Latin America/Caribbean
After 2009’s sedate gathering in Trinidad and Tobago, hemispheric leaders will follow the IDB annual meeting with a summit in Cartagena, Colombia, itself a symbol of the continent’s revival with its anti-crime and drug campaign again ensuring tourism’s popularity. The Free Trade for the Americas theme that initially motivated the conclave has recently been supplanted by a wave of protectionist measures in Brazil, Argentina and elsewhere as the Federal Reserve’s ultra-loose monetary policy has spurred speculative capital inflows in contrast with previous calls for stronger US direct and portfolio investment consideration. The host has again resorted to daily intervention to halt peso appreciation after easily placing half its 2012 external bond program with a $1. 5 billion issue. FARC guerillas recently renounced kidnapping as a terror and funding tactic, and the Santos administration has moved to enshrine a fiscal responsibility law which may bring a sovereign ratings outlook upgrade in the first half. Oil production now matches Brazil’s scale and higher export prices have raised the dividend from state company Ecopetrol, although domestic pump charges will also rise. The central bank continues its distinct 25 basis point hiking cycle on 3. 5 percent inflation and 20 percent bank credit expansion, as the minimum wage was as well lifted 6 percent with unemployment approaching single-digits. In Chile, headline price pressure is at the same level but the currency has not spiked with its petroleum import dependence and ambiguous copper direction. GDP growth should be close to 5 percent and the new monetary authority chief has urged a cautious stance after an early year minimal rate cut. The mining industry’s future, and in particular Codelco’s freedom from state control and earnings transfer, is again under debate after foreign partner disputes and an eruption of worker unrest.

In Peru such tensions provoked a cabinet reshuffle, but President Humala’s approval rating has climbed on the still buoyant economy and success in eliminating remaining Shining Path militants. The sol is up against the dollar despite purchases through February already above all of 2011, as the greenback’s share in total bank deposits reverts to one-third. After a well-received flotation by the city of Lima, the sovereign may return to global bond markets more actively to underwrite an ambitious public investment scheme. Uruguay is likely soon to join the investment-grade club with the budget roughly balanced and the current account hole hovering at 2 percent of GDP. 8 percent inflation has been met with rate tightening but is partially due to heavy vacationer demand for lodging and hospitality services. Its soft bond restructuring was hailed throughout the Greek saga as an elusive model as the Cartagena summit commences its own unsettled ascent.

Poor Countries’ Debt Sustainability Releases
2012 March 15 by admin

Posted in: General Emerging Markets, IFIs
The IMF and World Bank after a lengthy review proposed revisions to the 5-year old debt sustainability analysis (DSA) format for low-income economies to further break from official external focus to domestic and private sector borrowing access. 75 countries have been covered to date, with almost all “distress” cases designated before the HIPC completion point and concentrated on laggard performers by the institutions’ internal rankings for capacity, growth and policy. The near-term projections have been based on sound methodology but upset by commodity, financial and trade shocks that can come from the broader region or globally. However the post-2008 crisis waves have not brought systemic risks as first feared, due in part to the activation of special development bank facilities that incorporated the DSA measures into design and implementation decisions. The most burdened applicants got grant-only packages, while beginning in 2010 international commercial loans were also allowed alongside bilateral and multilateral support on a selective basis. The shift recognized the “new non-concessional space” left by a decade of debt relief initiative as the domestic-external balance also evolves. The former now accounts for 30 percent of the average total outstanding, and the share has doubled for a dozen countries in recent years mainly to manage higher budget deficits. Rollover pressure can be severe with maturities rare out to 10 years and shallow markets as calculated by turnover and institutional investor participation. Ghana, Kenya and Vietnam have among the top local debt-GDP ratios, often excluding contingent liabilities from state-owned enterprises and public-private partnerships.

Remittances are important to the overall sustainability tally and should be factored into adjustments for lower present value thresholds as a fraction of exports and revenue, the paper suggests. The danger zone remains public debt-GDP in the 40-70 percent range, according to empirical studies. However only a few borrowers in the universe report sizable voluntary bonds and credits beyond 15 percent of GDP, even as the estimated annual infrastructure needs for Sub-Sahara Africa come to $100 billion. In the Caribbean, Dominica and St. Lucia are outliers and in Central Europe Georgia and Moldova exceed the norm. The Georgian President was congratulated for top reformer status in the World Bank’s Doing Business scorecard during a February Washington visit as sovereign debt was included in JP Morgan’s NEXGEM index. Bank of Georgia went to a full GDR London listing around the same time, and economic growth and inflation are both forecast at around 5 percent this year. With overseas commercial exposure at 25 percent of GDP, a full debt servicing assessment may be warranted earlier than the standard triennial timetable to scrutinize rosier views, the document implies.

China’s Latin America Loan Lurches
2012 March 15 by admin

Posted in: Asia, Latin America/Caribbean
As Chinese-Latin American government development loans at almost $40 billion in 2010 surpass the traditional Bretton Woods providers with a focus on natural resource and renimbi-dominated facilities, an Inter-American Dialogue report investigating practices and terms finds they are stricter and more expensive than portrayed in popular criticism. The region has taken half of overseas commitments though CDB, the Ex-Im Bank and ICBC, and the 90 percent infrastructure and heavy industry concentration is greater than with Western sources. Venezuela, Ecuador, Argentina and Brazil have been the major recipients with Carcacas’ $35 billion tally to date a contrast with its $5 billion Inter-American Development Bank support. Their size is typically over $1 billion and CDB’s rates are commercial such as in Argentina’s 2010 railway project at 600 basis points over Libor, while Ex-Im’s concessional mandate slightly undercuts its US counterpart. Since 2005 of $75 billion tracked three-quarters have come from the former institution and while policy conditionality is not attached Chinese goods purchase “almost always” features. That element not only ensures Mainland business but reduces default risk, in the think tank’s view. Over half of recent deals have been loans-for-oil but they are done at market prices, and not through guaranteed quantities as a “last resort” when external funding is otherwise unavailable or shunned. On the environment the Equator Principles that voluntarily guide OECD credit agencies and international project financiers do not apply, but Beijing has adopted preliminary guidelines although enforcement is uncertain. The monograph concludes that Latin borrowers pay a premium with equipment and employment “strings” for this new pool. Its “greatest concern” may be reinforcing reliance on primary commodities instead of encouraging a diverse growth path, but the arrangement can be “win-win. ”

Venezuelan President Chavez will hope the relationship translates at the ballot box after Miranda state governor Capriles got 65 percent for a resounding victory in the opposition primary versus 30 percent for Zulia head Perez. He is now the Democratic Unity standard-bearer for the October election and is twenty years younger and advocates an economic platform of gradual control removal. The incumbent will continue a spending binge which increased government outlays 50 percent in 2011 while private investment cratered on 30 percent inflation. The sovereign and oil company PDVSA are prepared for another $10 billion in debt issuance until the poll to extend largesse and satisfy dollar demand under artificial exchange rates. The imminent supply has tempered a rally as the best EMBI performer on glimmers of a post-Chavez era. The consumer products giant Polar, energized by the possibility, may sue the regime for inadequate compensation for seized holdings as longtime adversaries generate momentum.

Ukraine’s Spilled Cup Condemnation
2012 March 13 by admin

Posted in: Europe
Ukrainian shares were relatively flat on the MSCI index as the current account deficit hit a post-crisis high of 5. 5 percent of GDP last year due reportedly to Euro football championship import needs, and jailed opposition leader Tymoshenko was visited by international physicians demanding she receive urgent medical care. The trade claims, combined with official intervention to support the currency, brought foreign reserves to $30 billion to cover only 60 percent of short-term external debt. A $2 billion loan was renewed by Russia’s VTB Bank and another $500 million bilateral facility was taken for winter gas supplies, but $3. 5 billion is due in IMF repayment in 2012 as the suspended $15 billion program awaits energy price and other politically sensitive fiscal shifts heading into October parliamentary elections. European banks continue to pare their local lines as non-performing loans stand at 15 percent and FDI otherwise is lackluster. Metals exports rely on Asian industrial trends and agriculture has again been hit by a deep freeze. GDP growth is forecast at 3 percent with consumption as a main driver, while inflation may be double that print and could catapult with eventual subsidy removal under Fund conditions. The interbank rate was yanked to 15 percent in January as liquidity evaporated and rumors spread of impending devaluation from the 8 hyrvnia to the dollar zone following a Moody’s outlook downgrade to negative. Credit may again increase on recovering deposit inflows, but accountholders recall the 2009 imposition of capital controls to prevent bank runs and have yet to regain confidence. Further privatizations may be attempted after the state phone company selloff to satisfy multilateral mandates but sweetheart oligarch deals for the soccer cup event have since drawn popular criticism.

With the sovereign rating cut, a Eurobond issue as in mid-2011 is unlikely to be repeated and VTB’s $2 billion loan has only been rolled over until June. The institution itself seeks additional state funds after the expensive takeover of scandal-ridden Bank of Moscow and its faltering share price after a “people’s IPO” had been injected into the presidential campaign with Putin’s call for a retail investor-only buyback. The lender’s Eurasia Union engagement has also been questioned in Belarus, which has also been unable to come to terms with the IMF under its authoritarian pariah leader Lukashenko. The currency has lost three-quarters of its value and inflation is over 100 percent, but the regime continues to spurn liberalization moves while recently ordering salary hikes. Putin too campaigned on a platform of minimum wage rises and higher defense spending to reprise the seat of power in defiance of street demonstrators and approved challengers including the business titan Prokhorov. Capital flight is still at an estimated $10-15 billion monthly and a proposal to impose withholding tax on corporate overseas issuance is designed to staunch balance of payments and fiscal leakage rocking the boat.



India’s Ground Crew Grimaces
2012 March 13 by admin

Posted in: Asia
Indian shares paused after an early year 20 percent-plus run on resumed net portfolio inflows as Kingfisher Air, founded by a flamboyant entrepreneur, followed the state airline into dire straits on a crushing debt and back tax load. Exposed banks pressed the government to devise a rescue as the central fiscal deficit again breaches the responsibility law target on economic growth falling below 7 percent. Inflation has moderated to that level allowing the central bank to tweak the cash reserve ratio, but official borrowing appetite sustains higher rates. In aviation, foreign investment in Indian carriers may finally be approved as a partial response, but wariness is embedded after recent reversals of telecom and retail store licenses. Important provincial elections in the coming months will dictate the room for coalition-opposition compromise on such issues, with contests in Uttar Pradesh and elsewhere drawing on appearances from Congress party scion Rahul Gandhi as his mother prepares to transfer leadership. The 40-year old is seen as a future candidate for prime minister and has avoided entanglement in Hindu nationalist quarrels and his age is in marked contrast to the octogenarian incumbent Dr. Singh. While the rupee has recovered ground with a lift from expatriate allocation, the current account deficit stands out in the region amid gloomy industrial output numbers. To buttress the external position and respond to Chinese competition South Asian free trade has received a fresh push after realization that the original SAARC initiative gained minimal traction. A services deal was signed with Sri Lanka, Bangladesh’s textile exports can enter duty-exempt, and bilateral delegations committed to quadrupling the current $2. 5 billion exchange with traditional enemy Pakistan.

Diplomats have also tried to broker a solution to the president’s ouster in the tourist haven of the Maldives islands after intervening in another attempted coup 25 years ago. The deposed head Nasheed had been a global advocate for climate change action on evidence of rising sea waters threatening to swallow the Indian Ocean chain. A small foreign aid program has also provided capital goods import and training facilities in Nepal and Afghanistan. It has steered clear of large infrastructure projects which are China’s focus and have displayed a poor track record at home. A recent study by the economic planning body underscored the enduring gap in fixed-investment at under 30 percent of GDP. Public sector banks such as SBI, again seeking recapitalization, have been the main funding sources despite earlier recommendations from the same advisory panel to boost private institutional investor, corporate bond and derivatives depth so that they reach altitude.

Bangladesh’s Forsaken Vortex Victims
2012 March 8 by admin

Posted in: Asia
Bangladeshi shares were off 30 percent through February at the nadir of the MSCI Frontier group as authorities scrambled to contain the correction’s financial system fallout and intensified negotiations for an IMF extended credit facility. The Dhaka exchange is down one-third from its end-2010 peak despite organization of an official rescue fund after disgruntled retail investors demanded an investigation into the collapse which uncovered unchecked margin lending and insider dealing beyond the scope of securities commission enforcement. Banks had direct exposure through their capital which will be limited to 25 percent of the total under new rules, and also through separate subsidiaries which were under-supervised at the same time credit-deposit ratios veered toward 100 percent on annual double-digit portfolio expansion. State-owned institutions may be weakest in equity and liquidity terms, and along with the central bank have been big government debt buyers to plug the 4 percent of GDP budget deficit. Growth churns at 6 percent on healthy garment exports and remittances, but inflation is at twice the figure on imported fuel and food expense. Lower aid inflows contributed to current account slippage and reserve depletion last year as the currency depreciated 7 percent against the dollar. Tax revenue lags at just over 10 percent of output, and electricity and fertilizer subsidies absorb one-fifth of spending. With the oil company’s imminent needs for non-concessional borrowing, an initial speculative-grade sovereign rating was obtained in 2010. Monetary policy has been tightened and strides toward greater interest and exchange rate flexibility are on course, but progress could be faster and corporate governance remains subpar, the latest IMF Article IV report comments. In an effort to boost accountability the Dhaka and Chittagong bourses are to be demutualized and cross-border links with India are under consideration as free-trade arrangements deepen with tariff cuts.

In Sri Lanka equity performance to date has also been negative as post-civil war growth eases from the recent 8 percent and rupee devaluation aggravates inflationary tension. Foreign reserves dropped 25 percent to $6 billion the past year and the central bank hiked rates and introduced credit curbs to choke import appetite. Infrastructure rebuilding and tourism have underpinned rebound despite commercial and diplomatic unease over the regime’s authoritarian tendencies and nepotism. The 10 percent overseas ownership ceiling on domestic bonds was bumped slightly, but another external issue is not on the horizon after consecutive oversubscriptions. Investors have drawn parallels with Vietnam’s low reserve level as it faces steep short-term repayment obligations. Money has gone instead into shares up 20 percent on the advent of single-digit inflation and trade balance improvement as the Tet New Year ushered in an overweight offensive.

Central America’s Cramped Election Campaigns
2012 March 8 by admin

Posted in: Latin America/Caribbean
Central American components of JP Morgan’s new NEXGEM index struggled for traction amid a string of early-year elections turning on debt and economic policy fragilities. Belize has plunged the most, off 25 percent as Prime Minister Barrow injected continued servicing of the post-restructuring “superbond” into the March parliamentary poll debate. The “willingness” challenge caused S&P to downgrade the sovereign rating to CCC+ as an end-February payment was due, with GDP growth at a 2-3 percent pace. With the coupon moving to 8. 5 percent on the $550 million instrument, public debt stands at 85 percent of GDP as good oil and tourism earnings eliminated the fiscal gap. The government has become increasingly chauvinistic over its tenure as low-income migrants pour in from throughout the region, and foreign direct investors in the utility sector complaining of rule changes were rebuffed by state takeover. El Salvador has elections around the same time where the opposition rightist Arena that dominated after the civil war is ahead of the ruling FMLN following a budget deficit increase to cover post-storm reconstruction. Remittances have held up with US recovery, but trade and official debt figures deteriorated last year. Tax rises on consumer staples have hurt domestic demand with anemic growth forecast this year. The Dominican Republic has performed better as the May presidential contest approaches with well-known candidates relatively even, despite derailing of the IMF standby agreement. Oil import costs swelled the current account deficit to 8 percent of GDP as visitor arrivals hit a record and free-zone manufacturing jumped double-digits. Higher energy and food prices pushed inflation to 8 percent, prompting the central bank to initiate a targeting scheme. Public sector debt remains modest at 30 percent of GDP but the burden of underwriting the failing electricity grid has combined with new calls such as housing Haitian refugees to feature as prominent political issues.

Guatemala previously shifted administrations and a business-friendly platform has been previewed on solid agricultural export results. Domestic bond issuance has bridged the 3 percent of GDP fiscal hole, while external paper yields less than 6 percent, thwarting appetite. Inflation is currently at that level, and remittances too are due to climb a similar rate to $4. 5 billion. In Jamaica these inflows as a crucial balance of payments element should reach half that sum as the new National Party team tries to resurrect the lapsed IMF program. International reserves have dropped below $2 billion as another debt exchange may be proposed to stanch the worsening 135 percent/GDP debt ratio which could include foreign obligations exempted in the original maturity extension operation. Prime Minister Simpson, after a recent electoral sweep, has also vowed to lift the flat economy which beached her predecessors.

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Brazil’s Unseaworthy Flotation Attempts
2012 March 1 by admin

Posted in: Latin America/Caribbean
Brazilian stocks after rocketing 20 percent were shaken by the failure of simultaneous IPOs as a startup travel company and the local unit of Norway’s Seadrill met with rejection and foreign investors, who took half the action last year, stayed on the sidelines. The tourism operator looked to raise $850 million after a six-month hiatus following a lackluster $10 billion total last year that was one-quarter 2010’s record. Equity players passed in favor of bigger established listings trying to cope with a 3-4 percent GDP growth climate as the central bank takes rates below double-digits. The exchange operator itself reported lower earnings and volume in the last quarter, and banks and brokers are increasingly pursuing a continental strategy to maintain profits and franchise strength, as in the recent tie-up between BTG Pactual and Celfin Capital. Debt financing remains the preferred route with $20 billion raised through mid-February, including a mammoth $7 billion global bond from Petrobras which received quadruple that amount in orders after a chief executive reshuffle putting an ally of President Dilma Rousseff in place. The stock market disappointment as well did not seem to dent enthusiasm for Sao Paulo airport concession privatization although the winning bidding groups featured well-known state pension funds and industrialists. Heavy fixed-income inflows however have resurrected the “currency war” cry as the central bank is again intervening against rapid real appreciation. Macro-prudential measures could be added after a pause and partial reversal, and transaction taxes may be a tempting option to uphold the promised 3 percent of GDP primary fiscal surplus as the government also revisits structural changes in pensions and other areas. It has dunned mining giant Vale for back taxes, and demanded that development lender BNDES increase dividends.

The trade balance is weaker with Asian commodity demand, and officials are pushing an agenda of new export locations and administrative and labor incentives to boost competitiveness. A business delegation accompanied the president on a visit to Cuba which focused on construction projects while downplaying foreign policy aspects. In response to poor World Bank rankings an omnibus law has gone into effect to ease enterprise formation. The formalization effort for small traders may enable a more accurate reading of unemployment which is officially under 5 percent. With looser monetary policy and credit still expanding at a 15-20 percent annual clip, inflation expectations are at the top of the target range. The central bank denies any caving to political desires and argues that the global context indefinitely removes rate hike return. The region, with the exception of Colombia, has echoed the need for a supportive stance and even there the 25 basis point hike may not be repeated soon in the offering pipeline.

Thailand’s Unsmiling Post-Flood Flicks
2012 March 1 by admin

Posted in: Asia
Thai shares continued behind Asian peers as 2011’s last quarter GDP fall at 10 percent was twice the previous period on the after-effects of the worst deluges in half a century. The central bank indicated further rate slashes after a 25 basis point move with the setback, as Asean neighbors also eased modestly. The budget contains $10 billion for new flood controls as auto and computer manufacturers struggle to resume production and extend their presence. Japanese firms, in view of the lowest current account surplus in 15 years and record yen strength, are rethinking locations and have pushed heavily into Vietnam with $2 billion invested last year with bilateral development assistance upgrading infrastructure. After their own natural disaster along with Thailand’s, and with Chinese wages rising, regional diversification has become a priority endorsed by the Economy Ministry especially for energy and commodities but also in financial services. Japan’s banks account for 40 percent of the $85 billion in Bangkok-directed foreign claims by BIS calculations, with less than one-year maturities equal to 10 percent of international reserves. Euro-zone based lenders represent under 10 percent, but have reportedly called in trade lines to raise capital ratios as demanded by supervisors. Malaysia’s reliance is lower with its history of limited liberalization and currency controls, and capital account convertibility for the ringitt remains gradual with the Islamic financial sector receiving preference. It is heading for elections with opposition leader Anwar Ibrahim again acquitted in a personal morals trial for lack of evidence. Prime Minister Najib, who is expected to soon seek a second term, may face an internal as well as outside challenge with a backlash against his intentions to dilute traditional pro-Malay policies in the interests of efficiency and social calm.

In the last polls just prior to the 2008 global crisis, the ruling party that has been in power since independence took a bare majority of the popular vote, and public debt has since mushroomed with consecutive stimulus programs. Foreign buyers have snapped up government securities as the central bank maintains a neutral rate stance. As an oil exporter, rising world prices have offset electronics weakness, and consumption is softer following the introduction of mortgage curbs after household debt topped 75 percent of GDP. UK banks are the largest foreign contingent with activity mostly funded on retail deposits, but export credit there too is under pressure according to the IMF. A minimum wage hike has already been dangled in the pre-election period and the monetary authority could likewise react with loosening as in the Philippines to slumping semiconductors and domestic demand to keep its loyalist charge.

Israel’s Stretched Strike Capability
2012 February 27 by admin

Posted in: MENA
As speculation again mounted that Israel was preparing a military operation against Iran’s nuclear facilities after comprehensive international sanctions, banks and the stock exchange were shuttered by a labor federation strike over contract workers, as the Netanyahu administration struggles to slim state employment to tackle the 3 percent of GDP budget deficit. Municipal civil servants had previously walked out on proposed higher utility taxes to raise revenue as housing costs continue to spark national debate despite evidence of modest correction as bank lending standards are reviewed. Interest rates went down 25 basis points to 2. 5 percent in January but many households are unable to get mortgages while 90 percent financing has overextended other borrowers. Property developers tied to a handful of family-run conglomerates that have readily accessed cash have drawn widespread official and popular criticism, and reducing their economic dominance has become a coalition priority as it also engages in contingency planning from Arab spring revolts. Delek Real Estate became overleveraged and recently completed a debt restructuring which sparked outcry from the central bank over favorable owner terms. Foreign investors after a run-up last year have shunned local corporate as well as government bonds, which lost their former tax exemption. The sovereign returned to external markets with a $1 billion US issue which was well-received as the first placement in three years after a ratings upgrade. Venture capital-raising likewise hit a decade peak of $2 billion in 2011 with one-quarter of the total going to internet start-ups, but the industry association predicts less activity ahead with the lackluster IPO climate both on the Tel Aviv and New York stock exchanges.

In the US, listed multinational companies have long been under scrutiny for relation with Iran, and the oil and financial embargoes have been stiffened in a new round to include European and Asian partners and the central bank and SWIFT payments network. Tehran has threatened retaliation with oil supply suspension and Strait of Hormuz closure as the currency has fallen 50 percent against the dollar with pressure intensification, forcing the central bank to intervene heavily and hike benchmark rates which remain indicative for no-interest Islamic lending. Restrictions have been tightened on foreign transfers as inflation already at 20 percent further spikes. The fiscal deficit was again worsening prior to the confrontation as the Ahmadi-Nejad administration moved to restore subsidies and spending ahead of March parliamentary elections. The stock exchange too could be caught in the boycott net as privatizations slowly unfold inviting foreign participation. Geopolitics may be deterrent enough despite the Israeli Defense Minister’s assurance of “no imminent decision” on an attack as Tehran transactions indefinitely lodge in their bunkers.

The UAE’s Island Retreat Reflections
2012 February 27 by admin

Posted in: MENA
UAE shares rose through mid February after MSCI’s upgrade postponement as Abu Dhabi committed to proceed with showcase projects including an artificial island with delays after extending another $5 billion lifeline to ailing property developer Aldar in which wealth fund Mubadala has a large stake. Debt restructurings have swept that emirate as well as Dubai, with a halt in construction hitting family-run groups and private capital providers.