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Financial services grew over 12 percent last year with such encouragement as the trade surplus hit 1. 5 percent of GDP in January-February. Soybean sales continue soft after a 30 percent plunge in 2015, but energy import savings are steady. Infrastructure building is expected to spur capital goods demand and weakness in Brazil, a main commercial partner, will erode exports. Inflation may outstrip output growth this year at 5 percent due to higher food and education costs as industries like hospitality take off to supplement the longstanding beef diet.

Brazil’s Timorous Temer Transfer
2016 May 11 by admin

Posted in: Latin America/Caribbean
Brazilian stocks extended their 30 percent MSCI topping climb as the House handily reached the two-thirds majority to recommend President Rousseff’s impeachment on budget manipulation grounds, setting the stage for her defense and Senate consideration up to a six-month period while Vice President Temer occupies the post. She labeled the action a coup and called Workers party members into the streets for support, and visited New York in an attempt to mobilize UN outrage against the “undemocratic” push. Temer’s PMDB party had already left the ruling coalition and he reportedly sent feelers to well-known past economic policymakers about serving in the interim administration under a business-friendly platform. The opposition PSDB associated with a free-market approach initially spurned the advances, but the presumed President-to-be, himself still facing criminal investigation, has vowed a “national unity regime. Commodities and the currency likewise strengthened in March, with the real above 4/dollar as the central bank intervened to curb further pressure and inflation moderated to projected high single digits with the depreciation trend pause. The fiscal deficit at 10 percent and public debt toward 70 percent of GDP remain stubborn in contrast with states, including Rio soon to host the Summer Olympics, getting debt relief in the form of 20-year longer maturity and 40 percent reduced monthly installments. Governors have appealed to the Supreme Court for additional savings by arguing they should pay simple rather than compound interest which could entail another $90 billion in lost revenue. Banks have thus far been spared major crisis fallout but the courts have also ruled they must compensate depositors for miscalculations during the hyperinflation era decades ago. However creditors may soon be stung by a spate of high-profile corporate bankruptcies in a wide industry range, including the $15 billion default by airline Oi, which has far-flung operations and foreign bondholders trying to organize as a single committee. They will test new Brazilian insolvency procedures as the offshore market has yet to reopen with the continuing travails of bellwether quasi-sovereign borrower Petrobras. Finance Minister Barbosa made the rounds of the Inter-American Development banks and IMF-World bank meetings with an air of reassurance pension and social security spending would finally be pared, but investors were skeptical of any near-term dramatic shift amid deepening recession with output due to drop 4 percent.

Mexico was dragged into the pension mess as the government agreed to assume Pemex liabilities under the private participation transition plan, which factored into a Moody’s negative outlook downgrade on fiscal consolidation delay. First quarter GDP growth was 2. 5 percent, with slack industrial production countering good car and retail sales. Inflation is around the same level, and the central bank is expected to stay on hold with the US Federal Reserve. Pemex’s chief executive toured the US to drum up interest after an estimated $30 billion loss last year, but joint venture partners are wary until the global oil price stabilizes and bond investors await asset sales to burnish the balance sheet. Finance Minister Videgary was on the road show after his reputation was tarnished by a suspect property deal as President Pena Nieto’s team struggles to solidify anti-corruption and drug credentials, with missing university students allegedly impeached at the sad source.



Stock Markets’ Sodden Sudden Upbeat Air
2016 May 4 by admin

Posted in: General Emerging Markets
All core stock markets on the MSCI Index were up through April with the exception of single-digit losses in China, India, Greece and Qatar for a 5 percent composite gain, while frontier performance was barely positive at 1 percent with an even split between winners and losers, with Argentina, Estonia, Morocco and Tunisia ahead double-digits. Peru will be demoted to the latter roster after a 40 percent rise with its three illiquid stocks, despite an official tour to world financial capitals in an effort to keep its place. It also endured public relations bonds setback as holders of decades ago defaulted agricultural instruments placed international ads criticizing recent judicial decisions and pointing out the ability to cover a much larger chunk than authorized under the court formula. The Andean group including Chile and Colombia advanced almost 25 percent but Brazil paced Latin America with a 40 percent run with Vice President Temer and a technocrat economic team slated to take power over the course of the President’s impeachment defense and the Rio Summer Olympics. In an outgoing nod to Workers Party supporters she increased budget provisions for the popular family social transfer program that helped win re-election, and her allies have mooted proposals for fresh pools as a way around the controversial removal process. In Asia Thailand (+15 percent) led followed by Indonesia and Malaysia at 9 percent, while the Philippines girded for presidential elections with a law and order mayor and adopted daughter of a former president as front-runners. GDP growth continues to motor along at 6 percent, but overseas worker remittances may have definitively peaked with a new cycle as Persian Gulf hosts in particular emphasize youth local employment. In Europe, Hungary, Russia and Turkey climbed over 20 percent, with Budapest sustaining its 2015 outperformance despite bourse takeover by the central bank, which is under fire from watchdogs at home and abroad for poor account disclosure and management practice. Russia’s play is on low single-digit valuations for top listings and the prospects of further partial divestitures and sanctions easing. Istanbul was buoyed by a credible new central bank chief promoted from deputy, on solid 3 percent growth and a multi-year exchange modernization plan for more sophisticated products and cross-border listings.

In frontier markets Saudi Arabia’s 1 percent decline was minor compared to neighbors, but the further relaxation of entry and ownership limits under the qualified foreign investor scheme met with little enthusiasm awaiting initiatives such as a future Aramco offering previewed under the Prince’s long-term economy strategy prepared with global consultants. In Eastern Europe Ukraine turned positive with the government reshuffle raising the odds of IMF aid release, while Kazakhstan plunged 12 percent on ratings downgrades and worse loan trouble in the property sector. Ghana and Nigeria were both down over 15 percent, as the former tries to uphold its Fund program fiscal fix and the latter dismisses any such resort with its no-devaluation stance while asking the World Bank for short-term project support. Jamaica, last year’s frontier winner also fell negative through April as the narrowly-elected administration tries to woo the business community on a US trip at a time when tourism excitement is minimal and drifting toward fresh destinations like Cuba.

Local Bonds’ Long Term Loss Lull
2016 May 3 by admin

Posted in: General Emerging Markets
The latest edition of JP Morgan’s local bond market guide coincided with a Q1 index upswing over 10 percent in dollar terms, breaking a negative string since the 2013 Federal Reserve taper tantrum despite an average annual 7. 5 percent gain the past dozen years. Currency fluctuation rather than carry has been the main loss component, and the Sharpe ratio over time has been roughly the same as other global asset classes. The average yield is now 6. 5 percent and commodity exporters in Latin America have been the worst performers, while importers in good current account positions like Poland and the Philippines led advancers. Real effective exchange rates by standard formulas peaked a year ago, and returns should stay positive but may flag in coming months with budget and balance of payments deficits across a country swathe. Since the 2008 crisis government domestic debt has risen 12 percent to 45 percent of GDP, and at over $6 trillion local bonds are almost half the developing market debt universe. China alone is $1. 5 trillion, almost the same as in all Latin America with Brazil $1 trillion of that amount. India, Korea and Mexico range from $350 billion-$700 billion, and Turkey is the largest Europe location at $150 billion. The GBI-EM benchmark comprises 15 countries with $900 billion outstanding, and gross issuance was near $1. 5 trillion in 2015, 60 percent from the top five markets. This year volume will be steady but Asia’s share should increase outside China, according to the publication.

Local banks, pension funds and insurers are the majority investors, but foreign ownership is close to $600 billion or 30 percent of the total on average. In Brazil holdings declined 15 percent since 2013, while they doubled in Colombia and the Czech Republic. Local debt fund outflows persisted over Q1 at -3. 5 billion and were offset by hard currency inflows, for a $1 billion overall allocation in comparison with the record $15 billion exit last year. Dedicated positioning remains underweight, and the domestic portion of fixed-income portfolios has dropped to 40 percent. New market expansion has generated interest and may eventually warrant index inclusion, with Vietnam, Sri Lanka, Croatia, Kenya and Argentina on the list. Bid-offer spreads have widened reflecting business and regulatory constraints on market-makers, and Brazil, Mexico and India instruments were the most frequently traded in EMTA’s latest survey. Currency pegs continue to be adjusted or broken, with further devaluation likely for Egypt’s pound and Nigeria’s naira.

Inflation-linked bonds are popular in Israel, Turkey, Chile and Colombia at one-fifth or more of the total, and in Asia Korea and Thailand have launched activity. Corporate bond stock including state-related and policy issuers approaches $6 trillion as well, with quasi-sovereigns half the universe dominated by China. Liquidity and access are limited in the large Asian markets with capital controls in place and the absence of Euroclear tie-up. Domestic bank loans far exceed bonds with corporate and household lines at 85 percent of GDP. In the Middle East Morocco and Tunisia retain overall foreign investor restriction, while Colombia’s tax regime is among the most onerous, with separate transaction and 15 percent withholding and capital gains levies despite a respite from even harsher earlier treatment.

Tunisia’s Jumbled Jasmine Revolt Reset
2016 May 3 by admin

Posted in: MENA
Tunisian stocks led the MSCI Frontier Index at end-March with a 15 percent jump, as it moved to finalize another IMF program and fresh Eurobond issue despite a “stalled transition” in the view of a Carnegie Endowment project calling for revamped aid and investment partnership. After jobless riots in the capital and rural towns the prime minister responded that the government had “no magic wand” with the state payroll already bloated with 800,000 employees to foster a 5 percent of GDP budget gap. The lack of career prospects pushes youth into cross-border smuggling with Libya and ISIS recruitment in Iraq and Syria, where the country supplies the largest external force. Militants have also attacked tourist sites at home, with revenue accounting for 15 percent of the economy off one-third in 2015. Estimated GDP growth this year is 1. 5 percent and February inflation was 3. 5 percent. World Bank President Kim visited before the Spring Meetings with a $5 billion 5-year lending proposal for banking and business reform that will also facilitate Libyan refugee absorption. The Fund successor facility will be for almost $3 billion over four years to address current account and fiscal imbalances, and the US and France separately pledged bilateral assistance. Washington doubled its annual package to $135 million, and already backs a venture capital fund and sovereign bonds, with an intensified focus on tracing billions of dollars in hidden assets of the ousted Ben Ali family. The ruling coalition, a combination of Islamic, secular and trade union parties, is at odds over anti-corruption and spending policies, as state company and bank cleanups languish. Privatization has limited political support and recapitalization of government lenders failed to pare the 15 percent bad loan ratio. New tax, investment, bankruptcy and competition laws are stuck in lengthy parliamentary debate, as key phosphate exports suffer from strikes and low global prices. The central bank now maintains the benchmark interest rate above inflation, but continues to drain reserves, covering only four months imports, to defend the currency peg.

The Carnegie paper notes that on its fifth Arab Spring anniversary the “experiment is in jeopardy” with a pattern of promise and disappointment. Official bureaucracy is overweening, infrastructure projects remain blocked, and historic advances in women’s rights may be eroded despite constitutional recognition. At the Deauville G8 summit in Deauville France $25 billion in aid was outlined but less than one-third that sum has materialized with donor budget and recipient capacity constraints. Civil service automation and rationalization is long overdue, and parliament lacks staff and equipment. Better coordination and fast track mechanisms can inject momentum, alongside EU and US free trade agreements. The business and financial communities should further weigh in on the new 5-year economic plan and advocate for customs and foreign exchange law modernization, according to the document. Credit access, especially for small and midsize firms is a paramount issue inviting more private sector banking competition and non-bank stock and bond market development. With a tentative deal between Libyan factions on a unity government, Tunisia can also position as a reconstruction base for next door oil recovery and other operations estimated to cost $10 billion, provided it rebuilds domestic policy concentration and confidence, the survey suggests.

The IIF’s Capital Flow Vertigo Trance
2016 April 25 by admin

Posted in: Fund Flows
The IIF shed early year gloom but referred to a continued capital flow “roller coaster ride” for the 30 countries its survey tracks, with the net outflow projection shaved to $500 billion from $750 billion last year as non-resident allocation turned positive in March. Equities are up 25 percent from the 2016 bottom and local currency bonds have regained favor with dollar plateauing, but the rebound may be due to general risk sentiment rather than specific economic improvements. Chinese renimbi and oil price stabilization and looser European and Japanese monetary policies have contributed to recovery, along with isolated stories like a decent budget in India and market re-entry with a record $15 billion bond offer in Argentina to pay holdout creditors and cover the fiscal deficit. Valuations and investor positioning were at extreme lows in January, with sovereign bonds offering yield pickup over zero and negative industrial country returns, and a 10 point difference in cyclically-adjusted price-earnings ratios between emerging and mature markets. However in external corporate bonds the discount argument is less compelling versus US high yield, especially with the amount outstanding touching 100 percent of GDP. Currencies may still be undervalued in real effective terms and volatility has also declined in recent months as an exposure argument. The outlook assumes the Federal Reserve will stay cautious on rate increases in light of global economic lethargy, reflected in IMF and World Bank growth downgrades during their spring meetings. Non-resident private inflows should more than double to $550 billion from 2015’s $250 billion, the worst in a dozen years. China and the rest of Asia in particular should experience a turnaround, but both FDI and bank lending will soften for all regions and Russia, Turkey and Ukraine will get $10 billion less than originally forecast. The combined current account surplus will fall from $265 billion to $220 billion as Asian and Gulf exporters lose reserves at a “more manageable pace. ” Euro area banks have retrenched from developing markets and international claims are down 10 percent since 2014 to around $3 trillion, with only Japanese loans rising. In Q1 syndicated activity was off 50 percent from the same period last year, and the IIF’s conditions index shows further tightening below the 50 level.

A separate section looks at Chinese reserves “great unwinding” which accelerated in 2015’s second half with a $425 billion drop. The main contributors were company dollar debt repayment and offshore Yuan deposit shrinkage, but unrecorded transactions in the errors and omissions account were also notable. FDI remained positive in that period at $150 billion, but portfolio debt and equity numbers were negative. Cross-border loans and deposits each were off $100 billion, often coming through Hong Kong subsidiaries of mainland banks. Foreign liabilities remain $1. 4 trillion according to official statistics often in the form of trade credit, and Chinese individual and corporate outward investment further swelled under the One-Belt One-Road program and personal savings access up to $50,000 annually. Export-import discrepancies came to $700 billion in trade data with under-invoicing still widespread. The analysis concludes that even with an additional slide to $3 trillion, reserves would be sufficient to cover short-term obligations and defuse serious currency depreciation according to IMF measures, despite another loop on the gravity-defying journey.

Peru’s Mountainous Fujimori Expedition
2016 April 25 by admin

Posted in: Latin America/Caribbean
Peru stocks and bonds spurted further after double-digit Q1 jumps as investor favorite and former Finance Minister and private equity manager Pedro Pablo Kucyzynski squeaked past leftist candidate Mendoza for second place with 25 percent in first round presidential elections behind front-runner Fujimori with 40 percent. The early June runoff could be a cliffhanger with opinion polls showing a clear generational divide with PPK 35 years older, and split over the legacy of Fujimori’s father who defeated guerilla insurgency but remains in prison over corruption convictions. Should his daughter win she may try to get release on old age grounds while steering clear of an outright pardon. Her party is set to get the largest representation in Congress, but both contenders share a centrist business-friendly platform. PPK has deliberately downplayed his elite background with a rural voter appeal on both commercial mining and community impact grounds, and the perceived credibility of the balance could be decisive for the outcome. The central bank predicts 4 percent GDP growth despite commodity and construction weakness, while inflation should come down from 2015’s 4. 5 percent with fading El Nino and currency depreciation shocks. Foreign investors have cut local debt exposure 20 percent as a fraction of the total with the sol at a decade low against the dollar. The benchmark rate was steady at 4. 25 percent in March after a bank reserve requirement hike, and tightening may be off the table during the election period with populist spending scenarios averted.

Venezuelan President Maduro in contrast has only a 30 percent approval rating with half of respondents ready to oust him in a recall process before his term ends in 2019. He declared Fridays off to save scarce power with violent crime resulting in record kidnapping and murder. The procedural and practical obstacles to a formal removal bid have prevented a united opposition front even as parties control a majority in the legislature. The vice president who would assume power is a relative moderate, but the judiciary still allied with the regime could overturn action or the military could intervene to preempt it. The top economy official Abad introduced changes in the multi-tier currency system which increased flows to the mid-range DICOM platform at almost 300 bolivar/dollar, although the allocation was less than one-tenth the total with state oil company proceeds still sheltered. PDVSA continues to insist debt restructuring will be avoided while a voluntary liability exercise is an option approaching lumpy year-end repayments.

Offshore haven Panama got a black eye as GDP growth slipped to 4. 5 percent with lower free zone activity and law firm foreign head of state and celebrity account data was leaked to a global investigative journalism network. Canal toll receipts rose slightly under a new structure and expansion should be complete by mid-year after contract complications and building delays. Tourism was expected to rise almost 10 percent this year according to industry projections but the notoriety associated with the tax avoidance revelations may spur a boycott, President Varela and top ministers rushed to defend the hub’s reputation in international media despite the uphill near-term public opinion slope.

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Mozambique’s Seared Tuna Platter
2016 April 19 by admin

Posted in: Africa
Lusophone African investors were dismayed by the revelations and terms surrounding Mozambique’s state tuna company for sovereign bond exchange, as neighboring Angola signaled interest in an IMF program after March rating agency credit watch notice for its own “B” status. The original fishing fleet funds raised were reportedly diverted for naval protection, and Credit Suisse as a lead underwriter also piled on undisclosed short-term loans. The local currency depreciated 50 percent against the dollar the past year, as external debt rose to $9. 5 billion or 65 percent of GDP. The fiscal deficit is stuck at 5 percent, and the outsize current account hole reflects extreme import dependence. The April swap will create a new 7-year instrument to allow time for natural gas production to come on line, but end-decade pricing may not be favorable when operations are in full swing, according to commodity and technical experts. Oil-reliant Angola is in trouble with comparable currency devaluation and 20 percent inflation, as the central bank pushed the policy rate to 14 percent at end-March. The upper target number has been breached, and officials foresee a swing toward single digits ahead of 2017 elections. President dos Santos announced he will leave the post and leadership of the ruling MPLA party the following year, with his son, chief of the sovereign wealth fund, already telegraphed as a likely successor. The top family has worked to maintain good ties with China despite controversy over loan for infrastructure schemes where local workers were hardly used and allegedly abused. Human rights and anti-poverty campaigners have focused on political opponent crackdowns and widening income inequality between a small business elite and the rest of the country, which added a risk premium for a recent external bond issue at 9 percent yield.

Ghana accessed the market in late 2015 with a World Bank guarantee and is again testing the waters in a non-deal roadshow around the Spring Bretton Woods institution annual meetings. A 3-year $900 million IMF arrangement is designed to control the runaway budget and current account deficits over 7 percent of GDP. Debt service is one-third and public sector salaries absorb another 40 percent of domestic revenue. New indirect taxes were introduced, but borrowing rates above 20 percent remain punitive and stifle internal investment as FDI takes a wait and see stance on cocoa and energy price direction and currency stabilization. Kenya likewise will make fund manager presentations amid accusations that previous bond issue proceeds were lost or stolen. The central bank closed an institution and removed executives for misbehavior in a cleanup effort in advance of potential monetary loosening, with inflation on track at 7 percent. A $1. 5 billion Fund precautionary facility is on hand and growth should hit 6 percent this year on good consumption and agriculture numbers. Zambia is still in IMF negotiations with the 7. 5 percent of GDP fiscal deficit at double the target on almost 25 percent inflation. Emergency power measures will increase outlays as contact arrears have also accumulated for eventual payment. Global copper value has not rebounded with key mining operations suspended and upcoming elections may scuttle final fund agreement as presidential frontrunners fish for support and a clear outcome unlike past contests.



Bond Flows’ Wistful Weave
2016 April 19 by admin

Posted in: Fund Flows, General Emerging Markets
Fund tracker EPFR reported $100 million in net bond inflows at the end of Q1 snapping a long losing streak, with $3. 5 billion in hard currency allocation clipping almost the same amount of local currency flight. ETFs were the sole positive category with dedicated US, Europe and Japanese funds shedding exposure, but performance was in stark contrast to equities’ $7. 5 billion hole for the period. Pure corporate topped sovereign commitment as the benchmark external indices were up on average 5 percent, half the local bond gauge gain in dollar terms. Additional industrial economy monetary easing and pausing helped drive currency results to a 3-year high as dollar strength eroded. Commodity exporters enjoyed the biggest bounce as oil recovered 50 percent from recent lows. The trade-weighted dollar was down 5 percent as the Chinese renimbi firmed under its new basket peg, and asset class underweight positions drifted toward neutral despite sketchy fundamentals. GDP growth forecasts were again reduced in private and official analysis, and commercial debt overhangs linger in major markets. The Institute for International Finance’s April capital flow survey predicted outflow shrinkage from last year but a still hefty $500 billion retreat. Sovereign ratings downgrades were the worst in a decade with a dozen in the first quarter, as the EMBIG Diversified fell below investment-quality for the first time in five years. Inflation moderated to the 4 percent range but developing country central banks will not loosen monetary policy more than marginally. The index spread compressed 100 basis points in March with $30 billion of gross issuance against a full-year prediction around $100 billion. International corporate placement came to over $45 billion but was one-third off 2015’s pace. Asia continues to dominate, but Latin America crept back with a flotation by Argentine state oil giant YPF amid buoyant post-election sentiment and Gazprom returned as a Russia stalwart despite sanctions.

Heading into the Inter-American Development Bank annual meeting in the Bahamas, regional debt readings were subdued as Moody’s put Mexico on negative outlook with fiscal deterioration from Pemex’s tangled budget and private partner transition. Industrial production and services show opposite patterns for lackluster 2. 5 percent GDP growth, as the central bank lifted the policy rate in February to stem peso weakness. Brazil’s unending political saga and recession evoked an impeachment-driven rally as the core PMDB party left the ruling coalition and the Congress begins voting to remove President Rousseff. Improved currency and inflation levels could allow SELIC rate cuts in the coming months and relieve the burden of state obligations to the federal government that will be refinanced under a March proposal. The negligible primary surplus target was further flattened to under 0. 1 percent of GDP despite the promise of official spending caps. In the Andean region Colombia’s current account gap will again approach 6 percent of output on lagging oil exports and portfolio inflows. Privatization of electricity generator Isagen should bring in $3 billion but foreign investor enthusiasm remains dented from stalled tax reform and rebel guerilla peace deals. Headline inflation at 7. 5 percent is double the target zone. The ELN has just joined the FARC in demobilization talks, and settlement runs the risks of rejection in national voting and heavy immediate fighter compensation and training costs unleashing another sovereign downgrade wave.

Asia Bonds’ Confidence Loss Creak
2016 April 11 by admin

Posted in: Asia
The March local currency Asia Bond Monitor prepared by a separate Asian Development Bank team cited “confidence loss” as the region’s biggest risk through the last quarter of 2015, with combined size of the ten country markets up slightly to $9 trillion. Two-thirds the total was from China, with Korea the second largest at $1. 7 trillion followed by Malaysia and Thailand, each over $250 billion. Hong Kong, Singapore, Indonesia and the Philippines ranged from $100-200 billion while Vietnam was the smallest at $40 billion. The annual growth rate was almost 20 percent and bonds outstanding were 62 percent of GDP, split 38-24 between government and corporate. Foreign ownership stayed above 30 percent for Indonesia and Malaysia, while declining below 15 percent in Thailand. Almost half of investors are in longer Indonesian maturities, “reflecting economic optimism” according to the review but also previous restrictions on short-term holdings. Corporate appetite “pales in comparison” with lack of liquidity and secondary trading; in Korea the offshore share is just 0. 2 percent as it was alone in the group experiencing net capital outflows in Q4 last year. East Asian issuance was $1 trillion for the period on a mixed performance, with $650 billion from Mainland China. Cross-border volume continued to wane at $2. 5 billion dominated by renimbi placement, while 2015’s G3 current total was $185 billion versus $200 billion the prior year. China, Korea and Hong Kong sovereigns and companies accounted for the bulk, but $15 billion was from Southeast Asia including a $175 million inaugural bond from Laos. So far in 2016 yield curves have shifted down with weak growth, and stock markets also slumped until March. Indonesia reduced policy rates in turn, and Hong Kong and the Mainland were exceptions with higher yields on general risk aversion and specific currency worries, the ADB commented. Credit spreads narrowed through February between top-rated corporate and government instruments, while they widened in Malaysia’s sukuk-driven segments. Among important policy and regulatory changes, China’s central bank removed the onshore bond quota for qualified foreign investors, and Indonesia liberalized external allocation for Islamic mutual funds. Korea and Thailand launched Capital Markets Master Plans, with the former introducing internet crowd-funding rules.

The subdued showing was mirrored in 2015 global debt trading data released by industry association EMTA, with a 20 percent fall to $4. 8 trillion for the lowest total since 2009. Officials attributed the weakness to benchmark index disappointment and the US Volker Rule clampdown on proprietary dealing. Local instruments were 65 percent of turnover in Q4 at almost $750 billion, with Mexico and India the most active. Eurobonds were $400 billion, with the sovereign-corporate divide at 55 percent-45 percent. Brazil, Mexico and Venezuela state oil monopoly bonds were the most popular. Indian government paper became the second most traded in the quarter with a 50 percent increase to $135 billion. China and South Africa also ranked high on the list, and together were equal to Brazilian assets.
A separate CDS survey revealed a 30 percent activity reduction, although the covered universe was only a dozen firms compared with the 50 for the main study inviting less confidence in results.

Russia’s Sanctioned Bond Boycott
2016 April 11 by admin

Posted in: Europe
Russian shares stayed positive through March as President Putin authorized state company minority stake sales through the Moscow exchange, including for VTB Bank that could fetch $5 billion in an initial phase, at the same time a $3 billion sovereign bond issue was planned to certify resumed access despite lingering targeted sanctions. US and European underwriters were warned off participation on the heels of a successful Gazprombank Swiss Franc placement, as Moody’s closed its local office with fading business and competition from a new domestic firm launched by the government to challenge the main ratings firms globally. The central bank claimed the agency will be “geopolitical risk immune” as it castigated the mainstream providers’ speculative grade assignment since the Crimea and West Ukraine invasions and hydrocarbon export price upheaval. Rates were on hold with another year of recession set this year, as officials may end private pension contributions in light of the medium-term budget deficit and cash-strapped regions look for additional federal support to cover salaries and services. Labor unrest has spread in one-industry towns, but failed to dent Putin’s opinion poll approval at 80 percent, reinforced by pro-Assad intervention in Syria that turned battle momentum for the regime with air bombardment. The ruble after 2015’s record loss has also gained slightly against the dollar, but the turnaround came too late to salvage the prospects of aluminum giant Alrosa, once more in restructuring talk over its $8 billion debt. After a current account surplus rise and two-thirds capital outflow drop to $55 billion last year, foreign reserves are no longer need for broader corporate refinancing needs, although hard currency may be mobilized through the rainy day sovereign fund for fiscal purposes. The agricultural import and tourism ban with Turkey continues and the Minsk accord stalemate on Ukraine’s breakaway provinces persists despite several meetings with Western powers and relative cease-fire. EU sanctions were renewed but Hungary and Poland are increasingly vocal about rollback, as German leader Merkel tries to maintain her hard-line position in the face of ant-refugee political revolt and France gears up for 2017 presidential elections. Leftist labor unions there decry proposed firing and working hour reforms and blame the Russian trade battle as an external scapegoat for flat growth and high unemployment.

Ukraine equities and bonds have stumbled on their own account with the IMF’s $1. 7 billion disbursement and accompanying bilateral aid hung up for almost six months, after parliamentary standoff blocked anti-corruption and fiscal cleanup. After the technocrat Economy Minister resigned in frustration, a key party left the coalition and a scramble is on to replace unpopular Prime Minister Yatsenyuk before another likely round of elections. President Poroshenko has imposed an April deadline, and Fund Director Lagarde sounded the alarm that the rescue may be indefinitely shelved without convincing political support and implementation. The package has restored reserves to $13. 5 billion as of February, but the central bank continues to intervene to back the currency amid projected double digit output shrinkage and 30 percent inflation. At the Vienna Initiative’s March forum in Kiev, the central bank noted 70 banks were gone since 2014 and a restructuring law under consideration should speed consolidation if creditor rights are duly sanctioned.

Turkey’s Refugee Deal Diatribe
2016 April 1 by admin

Posted in: Europe, MENA
Turkish bonds and stocks continued positive despite a suicide bombing on Istanbul’s main tourist thoroughfare as the EU offered EUR 6 billion in aid for refugee return from Greece, camp support for the 3 million already in-country, and resettlement to Western and Northern Europe after Syrian asylum claim processing up to an initial 75,000 ceiling. Brussels also agreed to accelerate visa-free travel for Turks in the Eurozone over Cyprus’ objections as negotiations persist over north-south reunification before May parliamentary elections. President Erdogan, after raiding a newspaper closely associated with the Gulen movement in exile, reiterated that the accord, opposed by humanitarian agencies as a violation of 1950 treaty protections, would not sidetrack the simultaneous border fight against Kurdish rebels which has spurred its own exodus. He will also expand presidential powers under planned constitutional revisions after the AK party regained its majority by a sizable margin in last year’s repeated elections. The terror attack in a busy shopping district came as tourism is down 40 percent during the current low season, but financing for the 4 percent of GDP current account deficit has endured on bank asset repatriation and $10 billion in underground transfers through the balance of payments “error” column last year. Economic growth should be 3 percent in 2016, with inflation struggling to stay in single digits but aided by the steadier currency. A new central bank governor will take over in April on persistent rumors the multiple-rate monetary policy regime will be simplified to respond to foreign investor confusion. Deputy Prime Minister Simsek has underscored a structural reform agenda to this audience, including private pension and stock exchange overhaul. High-frequency trading is already accommodated and more sophisticated technology will soon be introduced, and cross-border listings through the Eurasian Federation grouping and Islamic instrument expansion are near-term priorities. The EBRD has a stake and the exchange plans its own IPO in the coming months, while sharia-compliant bank launches may resume after a hiatus and supervisory assurance that consumer lending woes do not threaten the sector.

Cooperation has intensified with the Tehran stock market as auto and steel makers hope to rebuild the previous $20 billion in bilateral commerce now that international sanctions are lifted. Economy Minister Elitas pointed to Turkey’s comparative advantage in FDI as a “democratic” destination while acknowledging Iran’s low cost energy endowment versus total import reliance next door. A preferential trade agreement has been in effect for six months and two Iranian banks have applied for local licenses. Global relationships in contrast continue to be stymied by residual US restrictions even though Tehran lenders have been reconnected to the SWIFT network. The large expatriate community in Dubai has been unable to access basic letters of credit as the central bank blames Washington for the financial “Iranphobia. ” At a London conference in March senior officials promised to press ahead with bad loan cleanup and inaugural Eurobond issuance after regaining a sovereign rating. Anti-money laundering provisions may also be adopted as the country works with FATF’s regional unit, but Supreme Leader Khamenei vowed to uphold the “resistance economy” with growth less than 1 percent this fiscal year as scant refuge.



Argentina’s Holdout Holding Patterns
2016 April 1 by admin

Posted in: Latin America/Caribbean
Argentine equities joined bonds in global investor embrace according to a Financial Times survey, as a $5 billion tentative deal with the main litigating funds Elliott and Aurelius was struck after agreements with European retail and other distressed bond holders for 70 percent of untendered amounts. New York settlement was prodded by court lifting of the injunction against paying existing instruments forced into default last year under pari passu clause interpretation, as Judge Griesa ruled that “President Macri’s election changed everything. ” The government dispatched negotiators in contrast with the previous one’s refusal and has been on a broader bank and fund manager charm offensive, including keynote presentations to the IIF around the G-20’s late February gathering. It has also followed the IMF’s advice in revamping the economic statistics agency and will invite the first Article IV mission in a decade as recession is forecast this year on 25 percent inflation following the peso float and subsidy cuts to trim the 5 percent of GDP fiscal deficit. Banks are rebuilding dollar deposits on track to reach the $15 billion total before capital control launch, and private credit at just 15 percent of output may jump after a long drought to aid exchange-listed Galicia and Macro. Agriculture and energy firms have already rallied on tariff and tax adjustments, as S&P raised the sovereign rating to “B-“ on new policy direction and access to $6 billion in international commercial loans. Even politics has turned to the President’s benefit as dissident Peronist party members split from the group and backed revision of the “lock law” to allow bond resolution, with provincial governors also in line so they can get support for strained budgets.

Uruguay’s thinly-traded bonds moved up on response, although its other commercial partners Brazil and Venezuela remain in a deep funk and inflation is in double digits. Farm exports have dropped, and pulp mill production will barely sustain 1 percent GDP growth, as financial services and tourism await the Argentina fallout. Unemployment at 7. 5 percent poses a challenge to the social welfare net as authorities also try to curb the chronic budget gap. Its experiment in legalizing marijuana could be followed by neighbors if both crime reduction and revenue increases result. Drug strategy is also a key component of the peace accord with FARC rebels in Colombia, as demobilization is linked with investment and training in alternate crop cultivation. President Santos will put the pact to a national referendum later this year, and the effort has caused delays in a tax reform package and revived doubts about BBB rating status. The 6 percent of GDP current account deficit and 7 percent inflation have also triggered alarms. The state oil company was downgraded on poor industry prospects and the central bank raised the benchmark rate twice as El Nino-related drought may further hike food prices. The President and his team marked the anniversary of the ant-narcotics bilateral Plan Colombia in Washington as exchange rate weakness prompted calls for intervention from business executives surrounded by next door’s Venezuela’s collapse and upcoming presidential elections in Peru, where front-runner Fujimori holds out free-market solutions to win Andean competition.

Egypt’s Pound Sense Posturing
2016 March 23 by admin

Posted in: MENA
Egypt shares erased their double-digit MSCI loss into March as the central bank injected $1. 5 billion into the dollar-short foreign exchange market, where the parallel rate was at a 25 percent premium, and devalued the official level by half the difference while signaling “more flexibility. ” It raised interest rates 150 basis points in turn, as VAT introduction and further fuel subsidy cuts could again tip inflation into double digits. Sovereign external bond prices also jumped, with the benchmark yield down 50 basis points to 7. 5 percent, and foreign investors may reconsider domestic government Treasuries where holdings were a meager $50 million in 2015. State banks offered dollar-denominated certificates of deposit with 15 percent returns in a further effort to choke black market demand, despite the precarious international reserve position at $ 16 billion, just three months imports. The current account deficit will again be 3 percent of GDP this fiscal year as tourism and Suez Canal earnings continue to drop and the $3 billion needed to bridge the gap is unlikely to come from FDI or Gulf allies in their own oil slump. The government may begin talks on an IMF program at the April meeting after months of denial. The Fund has long called for pound peg relaxation and budget restraint with the deficit stuck at 10 percent of GDP. The wage bill has been curbed but debt interest payments rose 40 percent in the first half of the July fiscal year. President al-Sisi has hired a specialist security firm to help reverse the 40 percent drop in visitors the latest quarter after terrorist bombing of a Russian airliner, and officials have hinted at possible privatization offerings through the Cairo exchange to mobilize revenue and boost business and consumer sentiment.

Saudi Arabia’s stock market, which partially opened to non-Gulf investors last year, has not reversed course after a 10 percent MSCI decline through February, as worries persist over the 30-year fixed dollar peg there despite central bank commitment as reserves dipped another $20 billion in December to $650 billion. Banks have been warned against currency speculation and forward and CDS spreads have narrowed from initial unease, after the IMF slashed the GDP growth forecast to 1 percent and energy subsidies were modestly reduced. The prudential loan-to-deposit ratio was adapted from 90 percent to facilitate government debt issuance, and mortgage value limits may also change as public spending is pared on a whopping 15 percent of GDP budget deficit. The cost of the Yemen conflict must factor in as well, with a mounting political backlash against the intervention killing hundreds of soldiers. To entice global fund managers, the Kingdom may offer external bonds despite recent downgrade of its prime credit rating and list on the exchange a small portion of Saudi Aramco with estimated total worth in the trillions of dollars. The IPO trend has been lethargic through the GCC, and sharia-compliant investment fund activity likewise shriveled last year, according to industry statistics. Inaugural sovereign placement should be well-received with public debt around 10 percent of GDP, unlike the experience in Bahrain across the causeway where it is 60 percent. S&P downgraded the island two notches to BB causing it to shelve fund-raising. Wages take 40 percent of the budget, and since the Arab Spring outbreak a 10-year $10 billion GCC facility has been a linchpin of offshore center defense

Cuba’s Spectator Sport Exhibition
2016 March 23 by admin

Posted in: Latin America/Caribbean
A year and a half after the thaw in bilateral relations, US President Obama heads to Cuba for the first top-level visit since the World War II era, where a baseball game between national teams will feature as a highlight. Before the trip, bilateral travel and banking restrictions were further tweaked, but the lame-duck administration will not push to lift the 55-year embargo before its term expires despite congressional bills proposed toward that goal. Government and company sponsors have organized hundreds of trade missions to Havana and small agricultural deals, previously allowed with the Helms-Burton law, were signed, but big phone, technology and tourism projects have yet to materialize. Prices of defaulted external debt, which cannot be traded by US investors, have risen with additional European debt relief, but plateaued with the lack of major business and international financial institution follow-through to modernize dilapidated infrastructure in particular. Mission participants have rarely been allowed access to top Communist Party decision-makers and complain that unwieldy state bureaucracy and control remain intact since the opening, with no specific timetable for abolition of the artificial dollar conversion system. The rapprochement with Washington has also triggered a sudden professional exodus north as Cubans fear they will no longer automatically be granted asylum if claiming refugee status. The Inter-American Development Bank in addition reported only a 5 percent remittance increase for the region in 2015, which has been a vital lifeline for the balance of payments and household consumption.

Dedicated Caribbean-Central American fund managers have been preoccupied with elections in neighboring Jamaica, as the opposition Labor Party won by one seat in the historically-close contest. New Prime Minister Holness is unlikely to jeopardize the recent sovereign ratings upgrade and IMF program, which has exceeded fiscal targets after the previous one derailed. The budget may roughly balance this year with a 7. 5 percent of GDP primary surplus, as the trade gap also shrank 15 percent on oil price reduction. Remittances and tourism are up slightly, and with continued multilateral disbursements reserves should climb above $2. 5 billion. The stock exchange after topping the MSCI frontier category in 2015 has stayed mostly positive, and the Labor government could extend support with privatizations and a tougher law and order stance. However doubts linger on its campaign platform promising mass tax exemption and 250,000 fresh jobs, which vanquished Prime Minister Simpson called a “con. ” Political observers believe the race, despite competing economic approaches, mostly turned on age preference for the overwhelmingly young population, with 30 years difference between the candidates.

Guatemala, after watershed upheaval which ousted the president and vice-president to face corruption charges and brought a professional comedian to power, has attracted attention with a 20 percent remittance surge coupled with low public debt for a “BB” country. El Salvador’s bonds have also improved with the dollar losing strength to release export and fiscal pressure, but its debt/GDP ratio is 65 percent and economic growth remains lackluster at 2 percent. However US development assistance, which was to expand under an initiative led by Vice President Biden, may be threatened by continued local corruption allegations on display that can team with drug and gang crime.



China’s Rutted Road Trip
2016 March 17 by admin

Posted in: Asia, MENA
As the Chinese President visited the Middle East to promote the One Belt, One Road outward trade and investment program before hosting G-20 summit preparations in Shanghai with a no-devaluation pledge, the MSCI index again slipped double-digits on mixed economic and banking system readings. The manufacturing PMI was below 50 in February for the weakest result since 2009, and services also faltered as producer price deflation at 5 percent extended a 4-year trend. The central bank came under fire for omitting capital outflow statistics in the latest reserve compilation after committing to basic IMF transparency standards, as import data continue to reflect large leakages that may account for one-third of exit. It warned of continued Yuan fluctuation against the new currency basket and shelved another Qualified Domestic Institutional Investor scheme for asset placement abroad, but eliminated the reverse quota on interbank bond market participation as corporate issuance jumped 25 percent in 2015 to over $2 trillion. The flurry has lasted with RMB 200 billion in activity so far this year on scant secondary trading, with company debt now 160 percent of GDP, according to rater S&P. Rival Moody’s in turn cut the sovereign outlook from stable to negative on mounting government debt at 40 percent of GDP, including contingent liabilities from provincial borrowers and policy banks. The Finance Minister however insisted that fiscal policy could be further loosened going into the March People’s Congress, following another reserve requirement reduction for monetary stimulus as the money supply expansion target was steady at 12 percent.

Foreign banks which previously scrambled to secure a foothold are now leery of second-tier competitors in particular with questionable balance sheets and state support. Citigroup sold its minority stake in a provincial lender, and joint stock and city commercial banks have outsize exposure to wealth management products totaling $3. 5 trillion by industry figures. Regulators have granted quotas to the biggest institutions to clear non-performing loans through asset-backed securities transactions, as new debt assumption to repay old is increasingly rampant in natural resource sectors. Coal and steel “zombie” firms will shed millions of employees under the government’s enterprise reform and environmental and overcapacity push. Profits were off 7 percent in 2015 and state company debt/assets is above 60 percent, and international partners like the EU Chamber of Commerce lament that excess production “damages the global economy. ”

President Xi visited Iran on his swing and set a goal of increasing trade tenfold over the next decade, as $20 billion in post-sanctions released bank accounts will go to settling Tehran’s past arrears in oil for infrastructure deals. Beijing’s AIIB has a small Iranian founding share, and ICBC has applied for a local branch license as the system is reconnected to the SWIFT clearing network. The just-elected parliament will weigh a new banking law to enshrine oversight and resolution procedures, as non-performing loans are officially reported at 15 percent with a central disposal agency under consideration. The stock market has rallied after implementation day, but listed banks lag with profit drops despite a recent government discount credit program for cars and housing that my repeat past unbelted riding.

The G-20’s Weaned Currency Intervention
2016 March 17 by admin

Posted in: General Emerging Markets
Despite historic hypothesis about a Plaza-like joint currency effort among major powers, the G-20 financial official meeting in China, although focusing on the renimbi in particular in a multilateral setting, reiterated a previous pledge to avoid manipulation without charting new direction. At the 2013 conclave Japan was in the hot seat with its hyper-quantitative easing program crashing the yen, but in Shanghai policymakers passed with appreciation following the recent central bank move to negative interest rates. They agreed not to criticize purely domestic actions with indirect exchange rate impact but will work with the IMF on tougher peer review and spillover analysis. The Chinese hosts promised clearer communication and acknowledged near-term fluctuation potential in the new basket regime, but argued that large-scale depreciation was unlikely based on economic fundamentals. The ECB and Federal Reserve remained on the sidelines as they contemplate opposite stances against the fluid global backdrop, as US Treasury Secretary Lew girded against congressional accusations of currency manipulation within the Trans-Pacific Partnership proposed free trade pact, with Vietnam’s China-like peg approach often cited. Major emerging market units such as the Brazilian real, Russian ruble, and Indonesian rupiah have recovered against the dollar this year after 2015’s steep losses, and no standard formula can clearly identify misalignment and volatility is often attributed to reduced market-making capacity in the asset class. The last big Asia-oriented intervention was during the late 1990s financial crisis to weaken the yen and strengthen the dollar, with China a secondary player in the drama as it separately forswore large devaluation like its neighbors. The 1985 Plaza and 1987 Louvre understandings involved specific coordination between North America and Europe under pre-euro arrangements which were updated and adapted during swap line mobilization in 2008-09. At the Shanghai gathering China’s renimbi achieved automatic prominence with entry into the SDR, but the Mexican peso and South African rand are the most liquid developing country proxies.

Emerging stock markets stayed in a funk with the meager summit outcome with the core MSCI and BRIC indices down 7 percent and 12 percent respectively through February. In Asia China and India were both off 15 percent, while Indonesia and Thailand posted high single-digit gains. In Latin America, Peru was up 10 percent ahead of presidential elections with free-market advocate Fujimori in the lead, although it may be demoted soon to the frontier list on limited volume. In Europe Greece with a 30 percent decline is the worst performer, although the Czech Republic and Poland are also struggling. Turkey leads the pack with a 5 percent advance, and Russia is flat. In the Middle East Egypt is another laggard (-12 percent), and Gulf frontier markets are likewise negative so far in 2016 as they shift attention to domestic debt development with plunging oil revenue. European and African indices are in bad shape with Serbia and Nigeria at the bottom with 15 percent drops. Asia with the exception of Bangladesh slipped as well, and in North Africa Morocco and Tunisia are both ahead. Argentina as the sole Latin America representative tops the roster with a 12 percent increase despite peso battering with its anti- capital control crusade.

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Mideast Conflicts’ Unreconstructed Wreckage
2016 March 7 by admin

Posted in: MENA
With regional stock markets already reeling from commodity and geopolitical shock, the World Bank’s Middle East and North Africa economic team has tallied the direct and indirect costs of the Syrian and other wars presenting immediate humanitarian and medium-term rebuilding challenges. Continued civil strife, terrorist strikes, and low oil values cut 2015 area GDP growth to 2. 5 percent, and recent Saudi-Iran clashes further contribute to a pessimistic outlook, the report comments. However with Iran’s global market re-entry and improved security for Libya and Iraq energy exports, annual output could rise 4 percent despite flat Gulf performance. Oil importers like Jordan and Lebanon have not gained fiscal relief with the added burden of hosting huge Syrian refugee populations. Double-digit unemployment is up and investment has fallen in both countries, where tourism, real estate and construction hits will shave GDP growth to 3 percent. For Egypt and Tunisia visitor killings and slumping remittances, which account for one-tenth the economy, take a similar toll. For the GCC, oil break-even prices are one-third the level needed for budget balance. Saudi Arabia public debt will jump tenfold to 20 percent of GDP by 2017, and the government wage bill alone was almost that amount last year. Reserves there and in Qatar, Kuwait and the UAE will support continued spending through end-decade, but then the cushion will disappear and fuel subsidy reforms and property and sales taxes should help avoid that outcome.

In war-torn Syria, Yemen, Libya and Iraq GDP rebound is unlikely soon as budget and inflation indicators are increasingly dire, according to the report. A Damascus think tank puts government debt at 150 percent of GDP, with a 15 percent annual deficit and under 1 percent growth. Libyan oil production has dropped by two-thirds with fighting, closed ports and rival leadership. In Yemen hydrocarbon revenue is at an “almost complete halt” with a lack of basic services and inflation above 20 percent, as foreign reserves dip to a record low $2 billion. Iraq has reduced its latest budget by $1 billion and turned to the IMF for assistance after external bond market issuance proved too expensive and unlikely. Capital stock damage in Syria was $75 billion as of end-2014, and Libyan infrastructure needs are $200 billion over the next decade. Aleppo is the most devastated major city, with housing 65 percent of the total loss. Preliminary estimates of physical destruction are around $5 billion in Yemen. The UN counted 70 attacks on health facilities in late 2015 and widespread electricity and fuel shortages, with two-thirds of the population getting water from “high-risk” sources. In the four countries 45 million require humanitarian aid, and half of children are no longer in school. Syria has 12 million displaced internally and externally, and Iraq 4 million, and hosting refugees in Jordan has absorbed one-quarter the budget amid a 90 percent debt/GDP ratio as the poverty rate in this cohort remains over 60 percent. Only with a complete reversal from “non-democracy” to democracy and economic freedom shift to strong property rights protection could growth double by 2020, but peace and free-market dividends are remote, with the vicious cycle of ethnic and communal slaughter and payback sweeping the zone, the World Bank cautions.

Greece’s Border Crossing Crevice
2016 March 7 by admin

Posted in: Europe
Greek stocks extended their 2015 cellar MSCI showing with another 20 percent drop in January with worsening pension and refugee pressures, despite a sovereign ratings upgrade to B-minus with a stable outlook on default escape despite the 170 percent debt/GDP level. As the troika launched its latest review expected to last several months, the IMF continued with a firmer fiscal line insisting on 15 percent retirement system cuts as well as higher employer contributions. The central bank predicts first half economic contraction but notes a halt to euro exit speculation as bank deposits rose 2 percent in December although retail sales and the manufacturing PMI are still falling. Credit remains stagnant with only a small increase to the state as business and retail demand slumps, with one-third of households unable to pay their income tax according to a recent survey. A new revenue authority head was appointed as the Transparency International ranking improved 10 places with evasion crackdown, but officials including the Economy Minister continue as targets of corruption and misrepresentation inquiries. Politics is again in the headlines with opinion polls giving the opposition New Democracy party the advantage under a fresh leader, and farmers erupted in mass protest against agricultural austerity policies. A modest 0. 4 percent of GDP primary budget surplus was achieved last year, but roughly equals the additional forecast direct cost of the Mideast refugee crisis in the coming months, as arrivals exceeded 60, 000 in January despite harsher weather. German representatives have tied bailout approval to influx management and pressed for faster establishment of “hot spot” processing centers. Neighboring Macedonia, long embroiled in a diplomatic name dispute with Athens sealed its border leaving thousands more indefinitely stranded. Germany is likewise under fiscal and political strains from absorption with researchers estimating EUR 50 billion annual expense, and 40 percent in public opinion urging Chancellor Merkel to resign over the government’s asylum stance. Bowing to demands for tighter control, she struck a compromise with coalition partners in January to discourage family reunification and add the Maghreb region as an eligible return zone.

Cyprus is in the last phase of its EU-IMF program and will not draw on the EUR 2 billion still available, and also won praise for structural reforms by advancing a dozen spots in the World Bank’s Doing Business reference. It is grappling with pension rescue as a scheme was adopted to compensate funds for losses from the banking system collapse. Bad loans at the two surviving lenders are over 45 percent of the total with no reduction in sight, despite possible mortgage foreclosure action after passage of a new law. In Portugal two banks have been resolved with “little spillover” in Fitch Ratings view, but write-downs imposed on senior bondholders have been controversial. The Economy Minister also admitted the need for additional capital, which will have to come from private sources with government debt/GDP at 130 percent. The EU cited a “big difference” with the leftist coalition over budget progress, with 2015’s deficit above 4 percent, and warned of forthcoming fines and sanctions as a new president was elected with the power to dissolve parliament and the fading post-crisis stabilization formula.

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China’s Latin America Loan Double Trouble
2016 February 25 by admin

Posted in: Asia, Latin America/Caribbean
The Inter-American Dialogue’s 2015 database of Chinese official loans proclaimed a “doubling down” of commitments which were up $19 billion from the previous year to $29 billion. Development and Export-Import funding was the second highest on record, and over the past decade they have allocated $125 billion, according to the statistics compiled in cooperation with Boston University. The bilateral lines topped World Bank and Inter-American Development Bank combined totals, and Beijing also established $35 billion in regional funds mainly for infrastructure. The recipient countries remain the same four—Argentina, Brazil, Ecuador and Venezuela—with one-third directed to Caracas, although Barbados and Costa Rica got small sums last year. Natural resources are the focus, with Brazil credit to Petrobras and soy processors and a $5 billion Venezuela facility to increase oil output. Bolivia also took $850 million for road projects, and despite the absence of policy conditions, China construction firm use is often compulsory. State-owned commercial banks have entered the mix with Bank of China and ICBC participating in Brazil and Ecuador. The report points out that policy banks raised capital in 2015 to enable them to act counter-cyclically to the regional economic downturn, as they expand trade and investment abroad under the “going out” strategy. It adds that the Chinese finance focus on energy and mining can breed environmental and social conflict, and business and political backlash. It has been a “lifeline” in Venezuela’s case, but sovereign debt default may now loom with creeping collapse evidenced in deep recession, hyperinflation and overstretched reserves. The trackers conclude that the raw materials exchange feature may not be as viable in the current commodities climate and that a new dedicated private equity fund for manufacturing my represent future direction. Argentina may fade as a target as President Macri’s team reviews previous agreements, including a parallel currency swap line from the central bank, and Ecuador’s repayment capacity may also be cramped into 2016.

Buenos Aires has negotiated in New York with holdout creditors that have frozen external bond access pending resolution to lift court collection judgments, and proposed a 30 percent haircut offer in contrast with the 70 percent one under the original exchanges. European bondholders and two distressed funds immediately accepted, and the government moved separately to open the syndicated loan market with a $6 billion pool led by US banks. Terms must be approved eventually by Judge Griesa, who issued the historic “pari passu” injunction against all repayment, and the Argentine Congress, which must amend the “lock law” for a revised deal. Although President Macri’s party is in the parliamentary minority recent opposition defections may improve prospects, and pragmatists among the previously-dominant Peronists urge an end to the confrontation. Barbados’ Chinese borrowing was to turn a well-known castle into a luxury resort, as long-stay tourist arrivals rose 15 percent in 2015 to enable positive growth. However the fiscal deficit at 5 percent and public debt at 105 percent of GDP remain steep, with domestic obligations 70 percent of the latter. Privatization of a shipping terminal may bring in revenue and also invite FDI to counter the 5 percent current account gap, as the island’s double external and internal imbalances endure.

The OECD’s Unaccustomed Refugee Integration
2016 February 25 by admin

Posted in: Europe
The OECD, with Turkey and East European members directly affected by the Syrian refugee crisis, has compiled a best practice manual for the range of integration programs, particularly in light of labor market entry difficulties. It recommends customized language and skills training to mobilize the higher education of recent arrivals, where Sweden found that 40 percent had at least high school background. For Central and East Europe absorption is a “new experience,” and they have struggled with policy design long with border control. Early housing, health and subsistence interventions are useful, especially for children whose learning outcomes are jeopardized by poor living conditions and lack of instruction. Registration and tracking systems differ in speed and sophistication across Europe, and initial processing for humanitarian protection can take from a few months to a year without cultural and practical orientation available. Estonia, Greece and Turkey offer courses but they are often full. The Czech Republic and Hungary provide neither language nor job help, while Poland and Slovenia allow the former. Turkey’s career assistance covers traditional textiles and handicrafts but includes computers and the internet. However labor market access when granted typically involves strict conditions, such as testing and waiting periods in Greece and Hungary, and Turkish national restrictions for certain professions. Population dispersal across the country is also advised for burden sharing and employment search, but shelter overcrowding in urban centers is also a main driver. This “secondary migration” should be encouraged in worker shortage areas while keeping in mind the need for surrounding hard and soft infrastructure, the agency points out. Hungary bases a decision on asylum seeker family status, while Poland emphasizes housing cost and supply and Turkey looks at the immigrant share by municipality. Foreign academic and work qualifications can be hard to recognize and verify and specialized industry and scholarly bodies should be recruited to ensure integrity. Results should be weighed against “systematic skills assessments” which Emerging Europe members have not yet prepared. Intensive tailored on-line reading, writing and technical courses may be required and these offerings are currently limited through both government and employer channels.

Physical and mental health are priority issues, and unaccompanied minors present a particular challenge where schooling may be absent or badly lag local standards. Turkey has created special curricula for these students using Syrian teachers, and Slovenia has started to focus on low-education adults through additional evening courses with travel reimbursed.