No More Learning

5 percent GDP contraction in 2012 as a drought accompanied security deterioration to leave one-third of the population in food distress on inflation over 5 percent. Mining and cotton exports held up, but $250 million in central bank reserves were tapped to keep the current account deficit to 7. 5 percent of GDP as $60 million in bilateral and multilateral debt arrears accumulated. On the fiscal front banks agreed to roll over $275 million in treasury bills issued through the West African regional exchange as northern networks absorbed physical losses with NPLs before provisions at one-fifth the portfolio. In 2013 central bank accounts will again be accessed to cover the balance of payments hole as a mobile phone auction will raise additional budget revenue. Increased social spending is needed to handle almost half a million displaced people from the fighting while tax collection lags at just 15 percent of GDP. Defense will remain the largest outlay along with basic education, followed by public administration. Energy prices will adjust more to international levels and miners may face a higher profits levy, and future external funding will be mainly grants. The state housing and development banks could be sold or shuttered, and the foreign-dominated system may be at risk from exposure to other government-run borrowers even as the new $10 million minimum capital standard is met. Micro-finance institutions should be better monitored and the central credit register expanded to include small and midsize firms, the Fund advised. The return of normal weather and launch of another gold project this year are positive for the outlook, but the political transition is fluid, with an international force due to replace the French while attacks continue, and the uncertain timetable for fresh elections.

Elsewhere in the zone Cote d’Ivoire is again experiencing ruling party defections after completing a third sovereign bond swap, and presidents have been under armed assault in Guinea-Bissau and the Central African Republic. Senegal under new leadership has pursued a debt strategy of lengthening local maturities as a second external issue is sidelined with the area’s troubles. Former president Wade’s supporters have been reluctant to embrace the Sall team and insist on maintaining showcase projects and food and fuel subsidies. A controversial statue celebrating African independence by North Korean architects could remain prominent in the absence of the original grand designs.

Bulgaria’s Electric Grip Gripes
2013 March 12 by admin

Posted in: Europe
Bulgarian securities sold off as Prime Minister Borisov resigned and withdrew his party from the government after facing violent street protests against an electricity price hike for Czech Republic-owned utility CEZ. In a last-ditch attempt to appease popular backlash from years of austerity moves to avoid IMF resort, he rescinded the increase and dismissed technocrat Finance Minister Djankov, a former World Bank executive responsible for the Doing Business publication. GDP growth was positive last year on relative budget balance but pre-election spending and lower EU grants had begun to upset 2013 fiscal plans, which rely on reserves to support the currency board arrangement. External public debt is low at just 20 percent of GDP after payment of a maturing Eurobond, but per capita-income remains at the bottom of new entrants and non-performing loans in the foreign-dominated banking system are almost one-fifth the total. Credit expansion is under 5 percent and with headquarters paring local lines a “deposit war” in 2012 swelled accounts at double that pace. In regular economic monitoring Brussels has warned of potential weakness spread by the heavy Greek bank presence in particular in addition to continued underperformance in anti-corruption efforts. Recent state enterprise privatizations involving Russian bidders have aroused suspicion and criminal and terrorist gangs still roam as evidenced by a headline-making bomb attack on Israeli tourists. Prague in turn reacted angrily to the scapegoating of its biggest listed stock exchange firm which was previously accused of monopoly behavior on power costs. Recession lingers there on zero interest rates as the central bank thus far refrains from currency intervention. New president Zeman will appoint a board member in 2014 and will prioritize recovery policies. The current account deficit improved to 2 percent of GDP in 2012 on steady exports and reduced imports, as VAT hikes may send inflation toward 3 percent.

Romania was admitted to the EU at the same time and depends on an IMF precautionary facility which was extended three months to achieve government-run firm divestiture targets. The budget gap came in under the Maastricht 3 percent of GDP goal on 5 percent inflation due to fuel price adjustments. The thinly-held local debt market should be catalyzed by future incorporation into the GBI-EM index as the overall EMBI-originated complex marks two decades of benchmarking. According to sponsor JP Morgan the across-the-board sovereign and corporate size is almost $10 trillion and the 70 countries represented are mostly investment-grade. Growth and debt dynamics far outpace the developed world and combined foreign exchange reserves are $8. 5 trillion accounting for three-quarters of the global amount. Post-crisis net private financial inflows have been $2 trillion and per capita income has almost tripled since the early 1990s to $7,500. Competitiveness and social indicators place many developing economies in the leading ranks and anti-poverty progress has been notable although the Millennium Development Goal challenge into mid-decade requires a jolt.

The Capital Ecosystem’s Unfit Survival
2013 March 12 by admin

Posted in: Fund Flows
The McKinsey Global Institute used its 180-country proprietary capital flow database to warn of an unhealthy “ecosystem” with the cross-border total down 60 percent the past five years as post-crisis correction overshoots. Financial assets went from $200 trillion to $225 trillion over the period, but have fallen 45 percent as a chunk of GDP with annual growth crawling at 2 percent. Emerging market depth at 150 percent is under half the advanced economies’ 400 percent as loan, stock and bond market development lags. The holding pattern may stifle business investment and homeownership. International allocation has fallen from its $12 trillion 2007 peak mainly due to Eurozone bank retrenchment, and within Europe the ECB and other public institutions now account for most of the activity. Under additional regulatory strictures commercial banks have shed $725 billion in assets chiefly from foreign operations. The 2012 estimate for inward developing world direct and portfolio investment was $1. 5 trillion, while the outward sum was $1. 8 trillion increasingly in “South-South” direction, according to the research arm. FDI was off 15 percent last year, but represented 40 percent of global capital commitments as a “stabilizing influence. ” Current account imbalances which contributed to debt buildups have also improved, with previous deficits particularly pronounced in peripheral Europe and the US. Emerging economies can reset integration with corporate bond and small enterprise access pushes to meet trillions of dollars in equipment and infrastructure needs. Policymakers can restrain balkanization tendencies by completing the Basel III agenda, including for bank resolution and derivative clearing, while removing geographic restrictions for pension and insurance fund engagement. Low yields and growth for industrial countries will propel emerging financial market resort in the coming decade where trading is “shallow and illiquid” and can hurt both public and private equity strategies without greater attention to fostering “new models and skills,” the institute remarks.

A separate study by a group of business executives under the auspices of the Washington-based CSIS urges a private-sector based development approach to catalyze momentum, with financial and technical assistance going to promote entrepreneurship and trade. US government aid agencies would place economic growth at the mission core, and support corporate partnerships and bilateral and multilateral investment treaties. Financing mechanisms at AID and OPIC could be overhauled to serve these priorities, with the latter independent profit-making institution able to provide equity for its own account as with G-7 peers. An additional $350 million should be found through cost savings and efficiencies to aid commercial climate reform and small firm credit access, and low-income country targeted efforts like the African Growth and Opportunity Act could be expanded to other duty-free sectors, the panel believes. It backs capital increases for the official international lenders, as the Treasury formally submitted a $65 billion IMF quota request again to Congress from the 2011 G-20 agreement which has since barely evolved.





The Caribbean’s Dastardly Debt Do-Overs
2013 March 6 by admin

Posted in: Latin America/Caribbean
Jamaica, which was the only MSCI frontier stock market down in January, was further maligned with a sovereign rating default designation as Prime Minister Simpson proposed a second local debt exchange to restart an IMF standby arrangement after the 2010 $8 billion lower-interest longer maturity operation accepted by banks and securities dealers. She cited a “dismal future” with 55 cents of every budget dollar earmarked for service at the current 140 percent debt/GDP ratio. The Finance Minister repeated the previous line of no principal haircut although net present value terms classify the deal as distressed as benchmark yields neared double-digits. The domestic dollar lost 5 percent against the greenback in the last quarter as recession continued and less than 1 percent growth is expected this year at the bottom of regional ranks. External bond spreads are at 625 basis points over Treasuries on the assumption they will again be spared from restructuring although internal foreign-currency instruments are included. Foreign reserves fell 40 percent in 2012 to just over $1 billion or four months’ imports as remittances barely budged. The fiscal deficit exceeded the 5 percent of GDP target and the current account gap is double that measure on inflation in the 6-8 percent range. A tax package introduced in parliament, which the opposition described as “massive and iniquitous” will raise costs as the public sector will face wage and payroll cuts in an effort to bring the debt-output number below 100 percent by end-decade. The repeat swap follows the recent completion of Belize’s super bond write-down, as the basic coupon was slashed to 5 percent and the “step-up” to 6. 75 percent from 8. 5 percent after the government originally presented a demand for 75 percent reduction that was met with hedge fund outrage. Officials calculate $250 million in savings over the next decade, and secondary prices rose to 60 cents on the agreement. An immediate coupon payment is due as GDP growth is estimated at 3-4 percent on good North American tourist volume despite a murder saga implicating a US expatriate computer tycoon. FDI covers the current account deficit and the budget hole is small by sub-regional comparison as investment houses again recommended a “market-weight” position for the high-yield issue.

Neighboring Costa Rica in contrast has received heavy allocation from abroad prompting the imposition of capital curbs to stem currency appreciation as it prepares another $1 billion external bond placement. The economy will again expand 4 percent on both manufacturing and services pillars on inflation projected around the same level. Major tax reform is on hold with general elections a year away and public debt may soon touch 50 percent of GDP. Foreign firms repatriating profits have caused modest current account deterioration, but nature tourism remains a big offsetting draw for return vacations.

Korea’s Wan Warrior Weave
2013 March 6 by admin

Posted in: Asia
Korean President Park was inaugurated as she tapped a dovish think tank head for Finance Minister who may advocate fiscal and monetary stimulus as GDP growth sputters at a 1-2 percent pace on dented domestic and external demand. The stock market was at Asia’s rear on $2. 5 billion in foreign investor outflows in January as bonds were jarred as well by official saber-rattling over possible “hot money” taxes to brake currency appreciation now particularly pronounced against the yen on Japanese prime minister Abe’s ultra-easing thrust. The government also suggested it could limit state bank and company borrowing abroad as a major corporate issuer. The G-20 meeting declaration was mixed on the regional ramifications of Tokyo’s exchange rate policy, as Seoul reported a monthly export decline even though products do not directly compete for global share. Household debt remains high to stifle domestic consumption as the President pledged mortgage relief along with pension and child care support as an immediate budget priority. Heavyweight exchange listings like Hyundai Motor and steelmaker Posco predict double-digit sales declines as the average p/e ratio drops to 8. 5, just as the chaebol have been mandated to raise dividends under the new administration’s “economic democracy” campaign. Payouts are roughly half the emerging market norm at 1. 5 percent and giants like Samsung sit on large cash reserves. Activist investors have begun to challenge the return in an effort to elevate overall corporate governance, while Samsung executives reply they are saving for acquisitions like recent purchases of European semiconductor producers and for negative won shifts like the 20 percent rise against the yen since last year. The central bank continues to intervene to pre-empt a break through 1000 to the dollar as it points out the anti-inflation benefits ofcurrency strength with CPI under 3 percent. Analysts also cite possible safe haven cross-border channeling for the upward trend as tension with North Korea resumes following missile tests with reach now extending to the Western US. President Park, whose father was a staunch anti-communist general, had indicated potential overtures toward the young leader in Pyongyang during her run which may be indefinitely sidelined with the North’s continued militancy and reported willingness to help other rogue regimes including Syria’s Assad.

Japanese prime minister Abe has been mired in a separate confrontation with China over small disputed islands which contributed to a record trade deficit and last quarter recession. On a visit to Washington he held out the prospect of resolution to safeguard commercial and diplomatic ties as an early cleanout of the central bank board was orchestrated to proceed with expanded asset-purchase plans. Foreign bond buying proposed during the contest for LDP party return has been ruled out in the near term as private sector securities appetite turns to home with expected steeper yields and the upcoming end-March fiscal year traditional repatriation. However both retail and institutional interest is still keen for hard-currency emerging market instruments as Uridashi for the local market should again conquer $20 billion.

Colombia’s Wafting Wake-Up Scent
2013 March 4 by admin

Posted in: Latin America/Caribbean
Colombian shares lagged regional peers even as lead listing Ecopetrol’s capitalization became the continent’s largest, bumping Brazil’s state oil contender Petrobras, as the central bank which just appointed new board members again lowered interest rates on 2-3 percent GDP growth and inflation. Finance Minister Cardenas vetted the candidates as he resorted to verbal intervention to halt peso momentum to 1750 to the dollar after anti-appreciation operations through the oil reserve fund. Exporters have called for the resumption of capital controls attempted during the previous Uribe government, as President Santos grapples with a coffee growers strike from weaker Arabica sales abroad. Tax reform will reduce the levy on foreign fixed-income inflows, and private pension schemes remain confined to mainly domestic allocation in portfolio guidelines. As guerilla negotiations continue a mining project attack may induce direct investment caution as a new royalty regime for the industry is set. Macro-prudential limits have also been placed on bank open foreign exchange positions, as private sector powerhouse Bancolombia with New York ADRs completes further cross-border expansion, and securities brokers come under their own scrutiny following last year’s Interbolsa failure which froze the payments system. The IMF and World Bank concluded in a recent financial sector assessment that credit institutions “appeared sound” with one-fifth of assets in government paper and customer deposits covering two-thirds the balance sheet. Stricter capital adequacy rules go into effect soon as the average ratio stands at almost 14 percent, and NPLs are just 3 percent. European deleveraging has a negligible impact as Spain’s Santander sold its local network to a Chilean buyer leaving only BBVA with a tiny presence. However consumer borrowing has grown at a double-digit pace and non-mortgage loans now represent one-third of outstanding credit as household income may have plateaued. Corporate concentration is also high according to a stress test which urged tighter exposure ceilings. The unified financial services regulator acted promptly to close the insolvent broker-dealer several months ago, but the staff still lacks independence and legal protections. It has adopted the IOSCO principles, but along with the professional self-regulatory body could strengthen oversight over collective investment, risk management, and shareholder rights the study believes. A brief liquidity squeeze during the recent episode underscored gaps in contingency lines which the central bank could address with repo facilities available to all intermediaries.

In Chile economic overheating concern is in marked contrast as share prices are propelled by 5 percent GDP growth on unemployment at the same level, a 40-year record. Outside of commodity exports domestic consumption continues to jump at a 6-7 percent annual clip, including for imports which could send the current account deficit over 3 percent of GDP. The central bank has refrained from exchange and interest rate changes as pre-election jockeying begins with the immediate previous president the preferred flavor.

Africa’s Newfangled Novice Nods
2013 March 4 by admin

Posted in: Africa
The next wave of African sovereign debt candidates may experiment with different forms and structures, according to underwriters and rating agencies, as retail and institutional demand has raised dedicated monthly fund flows to near the $1 billion mark with index providers preparing a range of fresh tracking benchmarks. Zambia previewed the rage last year after its $750 million 10-year Eurobond as the state energy company and city of Lusaka came forward with plans, despite headline tax and labor fights with foreign food and mining groups and a law banning foreign currency use for everyday transactions. Angola will follow a private placement managed by Russian house VTB with a public one soon after completing its IMF program, as the state oil monopoly’s quasi-fiscal functions begin to show in the budget. Hard currency payments will go through local banks under revised arrangements which can foster transparency and financial sector development, as GDP growth hit 8 percent in 2012 on single-digit inflation. Petroleum output is almost 2 billion barrels/day, and infrastructure spending may cause a slight fiscal deficit. Tanzania may pursue the same selected private buyer route in the absence so far of a credit rating. Its financial adviser has proposed a non-standard floating rate instrument as it races East African Community neighbor Kenya for pioneer status. A Fund standby facility was recently signed as power sector problems threaten to drag public debt past 45 percent of GDP. Fuel import costs could aggravate the current account gap although the shilling has been relatively stable on occasional central bank intervention. Commercial borrowing for energy industry rehabilitation has touched the recommended cap within $2. 7 billion in total obligations or near one-tenth the economy’s size. A debt management office will be created within the Finance Ministry, and pension fund revamp should deepen corporate and government fixed-income activity. A separate report by Standard and Poor’s postulates the likelihood of sukuk debuts in Nigeria and Senegal with large Moslem populations after a 2012 South African treasury effort. It notes that unrated Gambia and Sudan regularly float short-term shariah-compliant paper in their own markets, and that an expected inaugural global attempt by Egypt in the coming weeks will focus attention on the segment.

Nigeria has enjoyed a bond bonanza as yields have dipped to 10 percent after inclusion in the JP Morgan local index, the IFC launches a 5-year naira issue as a supranational benchmark, and an imminent Eurobond intends to target the diaspora community. The central bank reported $13. 5 billion in gross foreign portfolio inflows last year, triple 2011’s amount, as the naira settles around the 155/dollar level. The currency was shunned in the post-2009 crisis as a narrow corridor was maintained and a one-year holding period was slapped on government securities. Officials have rejected reconsideration of controls while admitting old monetary pressure worries.

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The Frontier’s Unfolding Rave Formation
2013 February 27 by admin

Posted in: General Emerging Markets
The MSCI Frontier Index’s almost 8 percent January gain was five times the core market upswing, as half the constituents rose double digits with only Jamaica down for the month. Battered 2012 European exchanges led the charge, with Bulgaria and Ukraine ahead almost 30 percent and Serbia and Slovenia up over 10 percent, as the Eurozone crisis took a breather and IMF relationships were restored in importance. All Gulf markets entered the positive column with the UAE still on top with a 15 percent jump. Dubai managed another sovereign sukuk despite the unraveling of a $10 billion restructuring deal for a major government-owned group as banks balked at receiving the offer’s immediate twenty cents to the dollar. In the broader Mideast Jordan and Tunisia each advanced 5 percent as the former signaled it would follow Morocco in a proposed Eurobond placement and the latter began talks on a precautionary Fund facility before the killing of an opposition party leader re-ignited unrest. African members continued a winning streak with Kenya and Nigeria surging 60 percent and 75 percent respectively over one year. Recent addition Zimbabwe joined the frenzy (+25 percent) as a revised constitution was agreed before another likely round of presidential elections that will solidify power-sharing while indemnifying post-independence strongman Mugabe against criminal prosecution. The central bank in turn has accepted outside technical assistance to re-establish stability after revealing it had just several hundred dollars left in operating accounts. In Latin America-Caribbean Argentina and Trinidad escaped last year’s negative performance and Jamaica too could rally if an IMF pact can be signed after an extended suspension on fiscal deficit and structural reform misses. Buenos Aires’ single-digit valuations have been cited by mainstream fund managers already heavily positioned in Brazil, Mexico and Andes listings.

In Asia Vietnam (+20 percent) has embarked on state bank and communist hierarchy cleanup including arrests of accused corrupt executives and officials, as political dissidents have also received long prison sentences despite international outcry. A central asset management unit will consolidate bad loans estimated at 15-20 percent of the total as credit and GDP growth slow to a 5 percent clip. Inflation is back in single-digits offering scope for further modest interest rate reduction, as FDI and remittances send reserves to the $30 billion level covering three months’ imports. The currency has been stable after depreciation and listed company foreign ownership limits may be raised as many eye opportunity in next-door Myanmar. After passing a new investment law replacing 1980s norms the central bank will soon get formal independence as it moves from a prevailing deficit financing role. Last year commercial bank deposits jumped despite the meager 10 private credit/GDP figure as an ATM network spread. Both Japanese and multilateral help is now engaged in stock exchange development as dedicated Mekong-area funds line up to flag progress.



Venezuela’s Currency Platform Dive
2013 February 27 by admin

Posted in: Latin America/Caribbean
Venezuelan bonds continued as the main EMBI year-to-date positive performer after President Chavez ordered a long-awaited one-third devaluation from his Cuba sickbed bringing the official value to 6. 3 to the dollar, as the SITME trading platform was also disbanded leaving no hard currency outlet other than the capital control authority which has dribbled out only $75 million daily. The resulting dollar-denominated oil windfall could halve the fiscal deficit to GDP ratio, but will aggravate near 30 percent inflation and imported goods shortages as well as the bottom line of consumer goods multinationals still operating there, including giants like Colgate. Domestic debt outstanding also falls by 30 percent in international terms as that route may be preferred for sovereign and state petroleum enterprise borrowing. The central bank and finance ministry announced the changes under the temporary chief executive capacity of Vice President Maduro who has been in charge since the mid-January absentee inauguration. The opposition labeled the moves “economic destruction” as representatives continue to call for Chavez’s resignation and new elections on constitutional grounds. Military leaders have not intervened outright in the succession issue, as comparisons are increasingly drawn with Cuba’s transition where power was unilaterally transferred. However the island’s Communist party brass recently agreed to future term limits and elevating a younger generation in the hierarchy. It may also seek alternative concessional oil providers to Caracas’ Petrocaribe scheme, with Angola reportedly a primary target. In the region Ecuador may be worth courting as President Correa cruised to re-election on the slogan of “hope replacing despair. ” Other candidates include a banker and former general, but with government revenue tripling over his tenure social spending has cut the poverty rate to 25 percent. While cracking down on the courts and media, he has hinted at a return to external bond markets after deliberate default as $3. 5 billion in Chinese loans are to be repaid with natural resources. His campaign rhetoric regularly lambastes “savage capitalism” although the US dollar has been in use for over a decade.

In Andean contrast the sol grab is pronounced in Peru as direct and portfolio investment pour in and central bank intervention at almost $1 billion a week in mid-January turns more aggressive. The foreign share of local government debt is 60 percent, and appreciation may hurt exporters whose shares have suffered under Lima exchange retreat so far in 2013. Although economic growth tops the continent at 6 percent, the current account deficit has doubled to 4 percent of GDP and annual credit expansion has been 20 percent. Bank reserve requirements have again been raised and no new global bonds will be issued this year. On the political front President Humala retains 50 percent popularity despite local community mining project disputes as he favors a “balanced” platform protecting the poor while propelling a commodity boom to rival nearby Chile’s.

Iraq’s Bell-Ringing Blast Effect
2013 February 22 by admin

Posted in: MENA
The Baghdad stock exchange after a 10 percent 2012 decline started the year with a record $1. 25 billion phone company offering which could join with additional cellular company mandatory floats to triple capitalization to $15 billion. The Asiacell transaction was the Middle East’s largest in five years and oversubscribed by Gulf investors alongside the Qatari government-controlled parent. Rabee Securities which targets foreign business was the main underwriter and a Kuwait bank local unit will be custodian after HSBC decided not to provide the service. Mobile penetration is already 75 percent of the population, but the additional listings will diversify from bank domination with thin liquidity. GDP growth will be in double-digits in 2013 on oil production comeback according to the IMF although the central administration and the Kurdish region continue to argue over the decision-making and royalty split. The former is under coalition and sectarian attack with the authoritarian bent of Shia Prime Minister Malaki, who has held the post since 2006 and accelerated an opponent purge since the departure of US ground troops. His Finance Minister’s bodyguards were arrested in an alleged plot, and the civil war in next door Syria has widened clan strife. The Kurds face their own fallout from the conflict as President Talabani who has maintained warm international ties is ill and may resign.

Iran on the other hand has opened a $1 billion trade credit line with Damascus as its bourse is on a 40 percent 6-month tear with a rush into companies such as in petrochemicals benefiting from currency depreciation. The Export Development Bank is under US sanctions for military support and will back consumer good shipments. A separate accord covered energy cooperation as Syria’s central bank reserves are estimated to have fallen two-thirds to the $5 billion range since 2011. The Iranian rial in turn has plunged 50 percent against the dollar since a global commercial and financial embargo was tightened, resulting in the reported resignation of monetary officials. The Health Minister was also dismissed amid controversy over medicine shortages and pricing, and the second phase of subsidies reform was suspended in view of administrative bottlenecks and fear of aggravating 25 percent inflation partially fueled by the massive cash handout component. Bond issues will absorb liquidity, as food costs are up 40 percent on annual basis. According to the IMF and World Bank the economy shrank slightly last year and the 2011 result was recently revised down to 3 percent. President Ahmadinejad, who ends a disputed second term in the coming months, visited Egypt after a long bilateral estrangement to offer assistance and advice as Cairo tries to assemble a coherent transition model with foreign reserves below the critical three months imports threshold. Islamic-style sukuk issuance has been approved to fund the 10 percent of GDP budget gap as pound pushback under the new auction system rings alarms.

Loan Officers’ Altered Mood Mooring
2013 February 22 by admin

Posted in: General Emerging Markets
The IIF’s latest quarterly poll of 150 worldwide emerging market bankers, modeled after the US Federal Reserve’s regular sentiment survey, charted a return to a barely favorable 50 lending condition reading after a year below the cutoff. Both domestic and international aspects brightened, particularly in Europe and Latin America, while Asia benefited from a trade finance thaw. However the outcome was mixed as all regions except Africa-Mideast reported an increase in bad credit laying the potential for future pullback. Europe’s indices began to converge after badly lagging for consecutive periods on open-ended central bank support, although standards remain tight with real estate supply and demand among the most difficult. Latin America’s break from monetary tightening was noticeable, but was offset by decreased local funding in the MENA sub-region. Sub-Sahara Africa’s trend was “impressive” for a first-time over 50 result although external provision was still constrained and could worsen over the coming months under the fallout from Western anti-terror operations in Mali and the surrounding Sahel. Oil-producing locations are also under scrutiny from the major security breach in Algeria which involved hostage kidnapping and killing. The attacked facility was a joint venture with state hydrocarbon monopoly Sonatrach, which has raised money abroad and is the best-known listing on the dormant stock exchange. The ruling party there has battled its own insurgency for decades after annulling an election won by the Islamic Front in a precedent now closely watched for parallels with current Egypt strife. The vulnerability was exposed as new energy exporters like Ghana have created fund structures to overcome the past legacy of industry corruption and opacity which lost Nigeria an estimated $30 billion over the past decade. President Mahama won a full term in December under a framework that safeguards 30 percent of revenue for infrastructure, education and power development. A separation petroleum commission is responsible for licensing and regulation as earnings came to 7 percent of GDP the first year of production. Economic growth was 7 percent in 2012, but the fiscal deficit overshot at over 9 percent of GDP on election spending and a 35 percent higher wage bill. Utility subsidies and currency depreciation were a drain, and the West Africa Gas Pipeline was out of operation. The administration has a medium term budget gap goal of 3 percent but has not indicated specific steps.

Kenya, which was a top frontier stock market last year, is now in its own poll run-up as indicted ethnic violence instigators Kenyatta and Rutu team on a Kikuyu-Kalenjin ticket against Prime Minister Odinga from the Luo tribe. Sporadic land skirmishes have again erupted amid fears of greater bloodshed before the March event. The gloom overshadowed launch of a long-planned small business tier of the Nairobi Exchange for companies with at least $1 million in assets and 100 shareholders intent on mutual reward.

China’s New Year Blast Bleats
2013 February 18 by admin

Posted in: Asia
Chinese shares entered the new year period in bullish spirit up 20 percent from last year’s low, as official GDP growth and PMI indicators returned to the respective 8 percent and 50 percent-plus ranges despite the record central bank cash injections to meet personal holiday and lingering system liquidity demand. In December banks provided only one-quarter of financing now half-controlled on an annual basis by alternative bond, trust and wealth management channels. The big 4 share of the former which may reach the trillion yuan mark in 2013 has in turn dropped to 40 percent, as second-tier lenders have moved aggressively into high-yield and local government business.
20 provinces again set fixed investment growth targets above 20 percent according to reports as central authorities following the recent leadership reshuffle try to tilt toward consumption support. The central bank has warned of a short-term debt hump equivalent to 50 percent of GDP stemming from the post-crisis stimulus programs along with a maturity mismatch for longer-range infrastructure and housing projects through “shadow” sources in particular. Although declared non-performing assets amount to only 1 percent, total on and off balance sheet exposure could come to several times economic output, analysts calculate. The IMF estimates trust industry size at 5 trillion yuan through a combination of licensed and unmonitored institutions often offering products analogous to the “toxic” collateralized debt obligations which precipitated the 2008 US crash. Banks have packaged such instruments at a multiple of that amount to evade general quotas and specific property company prohibitions. Separate non-payment episodes at trust Three Gorges and Huaxia Bank have highlighted dangers, and brokerages have in turn received almost RMB 2 trillion in accounts from the originators for an additional layer of fiduciary complexity. Local governments have tapped this capacity in hiking 2012 bond activity 150 percent to RMB 650 billion as overall debt topped RMB 9 trillion by private and public tallies. One-third of interest and principal due may have been rolled over as three-quarters of facilities were rescheduled with stricter future guidelines at Beijing’s urging, according to international media.

Corporate bond data trackers classify 75 percent of issuers as government-backed to some degree, and foreign investors prefer these names although they returned to mainland and Hong Kong high-yield real estate developers in January with $3. 5 billion through ten placements. Global funds put $550 million in Chinese bonds for the month, half the total for all of 2012. 10-year yields for top-rated firms are near 5. 5 percent, and small companies continue to account for less than one-tenth of volume. Without the public guarantee, creditor wariness persists in view of the recent workout experience which imposed large haircuts as in the case of fraud-ridden Sino Forest. In the trust sector, participants with long memories may recall the comparable GITIC saga during the Asia financial crisis which created its own fireworks burning extended hands.

Latvia’s Guarded Peg Protectors
2013 February 18 by admin

Posted in: Europe
Baltic markets stretched their winning streak as restored investment grade borrower Latvia repaid the IMF’s 2008 crisis lifeline early with proceeds from a December dollar bond, and Russian depositors transferred accounts from Cyprus now in the process of seeking its own rescue. GDP growth last year at 5. 5 percent was the EU’s best, on “remarkable” export performance in the Fund’s view on new market and product forays. Unemployment dipped below 15 percent but is still long-term structural in nature with a large informal economy and skill gaps. Consumer price inflation which spurted on tax increases subsided to 1. 5 percent, and the fiscal deficit is below the 3 percent Maastricht criterion with euro entry on track by mid-decade. Banks’ return on equity was 10 percent through the last quarter with NPLs at 12 percent concentrated in the household sector. After the liquidation of two institutions overall credit is contracting as Scandinavian parents continue to pare subsidiary lines. The loan-deposit ratio fell 85 percent from its peak to 175 percent, and non-resident now exceeds private resident deposit size with recent 20 percent “historic” expansion from CIS relocation away from “stressed” centers. Although capital adequacy is double the Basel 8 percent minimum, the regulator recently found deficiencies in a mid-size offshore money specialist. The economy, which shrank 25 percent over 2009-10, will slow modestly on a current account gap of 3. 5 percent of GDP this year, according to the organization. FDI should advance, but high external debt remains a “significant” risk. Single-currency adoption could begin in 2014 and erase the chance of a speculative attack as spread throughout Central Europe five years ago. The benchmark interest rate could fall further from the current 3 percent as banks gain access to ECB liquidity. International reserves at EUR 5. 5 billion satisfy import cover but a heavy medium-term external repayment schedule requires over half that amount. The Fund advocates “vigilance” in light of 2008’s 40 percent reserve depletion when Russian accountholders fled. It also cites vulnerability from “reputation risk” associated with anti-money laundering weakness, and regulators have promised to address these issues while strengthening foreign-directed prudential norms generally.

On the restructuring front sales for Citadele and the Mortgage and Land Bank have been attempted and assets recovered from Krajbanka. State development units will be merged and the successor institution will not compete commercially. Pension and tax reforms will phase out toward 2015 and must be modified longer-range, and family and transport subsidies should be better targeted, the agency believes. A fiscal discipline law enshrined in the constitution is a top priority, and double-taxation treaties await clarification. Work incentives are lacking in the labor market, and insolvency court “abuse” is a problem in the absence of a cash flow test. Central governance and reporting for state-owned firms despite intentions must be established with a legislative peg, the report adds.

EU Insurers’ Long-Term Lurch
2013 February 11 by admin

Posted in: Europe
As net inflows briefly resume to EU peripheral bonds, an institutional investor council chaired by insurance giant Swiss Re under the auspices of the IIF with $20 trillion in combined assets issued a plea to redress longer-range post-crisis allocation obstacles. Financial repression steering funds to governments has been encouraged by Basel and Solvency directives and can act as a tax with negative real interest rates. One-third of treasury securities are now held on public balance sheets in advanced economies hindering proper price discovery. Regulatory reforms have created perverse incentives though a shift from equity to “safer” fixed-income and portfolio diversion to less-monitored and capital-tied alternative channels. Bank, insurer, and pension fund treatment still occur in uncoordinated “silos” which promote extra-territorial and competitive overreach, the group asserts. The new Solvency II mandated higher set-asides for infrastructure and private sector bonds than may reflect default experience and worsens the term asset shortage and duration mismatches. Current capacity is estimated by experts at 20 percent under future investment needs. EU energy, transport, and information technology projects will demand EUR 2 trillion over the next decade at a time of traditional sponsor deleveraging. A dedicated bond market as described in a recent European Commission report could be launched with supporting performance indices and tax exemptions to meet the challenge. Aging populations both in the industrial and emerging world could be trapped in an indefinite low-yield environment eroding household and retirement system values. The financial transaction tax due to go into effect in 2014 will raise around EUR 40 billion but also shave regional GDP by half a point. Liquidity will disappear especially for derivatives and the ultimate cost will be reflected in even lower real returns. The unilateral nature of the decision by officials without consulting stakeholders follows a pattern already experienced with Greece’s sovereign debt restructuring with back-dated collective action clauses. Good-faith negotiations should honor the principles contained in the IIF’s decade-old code of conduct and the IMF should fully consider the input of private creditors in conducting the signature sustainability analysis.

The workout saga has now spread to Cyprus with insolvent banks post-haircut as deposit growth was flat in 2012. The EUR 15 billion-plus rescue request is close to total GDP and approval has been postponed until after February presidential elections. EU Monetary Affairs Commissioner Rehn has downplayed the delay and the risk of euro exit as German chancellor Merkel’s party reeling from a recent state defeat questions the island’s anti-corruption and money laundering credentials. Gulf offshore haven Dubai in contrast overcame debt burden worries with a 10-year dozen times oversubscribed sukuk yielding below 4 percent. 40 percent of investors were from Europe, and non-bank funds took one-third the tranche. The emirate hailed the success as “a long way since 2009’s tough period” despite short-term repayment humps.

Mexico’s Fair Maiden Fixes
2013 February 11 by admin

Posted in: Latin America/Caribbean
Mexican shares continued their honeymoon with the new Pena Nieto administration as tycoon Carlos Slim moved to list the Sanborns cafeteria chain for close to $1 billion despite anti-trust actions against his empire seeking more media and telecoms competition. The central bank at its latest gathering also turned dovish after holding rates for an extended period, as foreign investors slightly trimmed 35 percent local bond ownership. Both growth and inflation should be around 3. 5 percent this year, and after registering the first trade surplus since 2000 on record car exports FDI is expected to pick up above 3 percent of GDP. Wage and productivity equality with China and middle-class demand will attract manufacturing and services interest and greater private opening for Pemex could bring traditional and alternative energy providers. Peso strength should maintain a near-term 12 to the dollar range on a minimal intervention stance compared with neighbors. The PRI President has tapped ministers from other parties after leaders signed a 95-principle reform pact upon inauguration. It builds on more flexible labor rules initiated by his predecessor and envisions further fiscal and structural changes to solidify the revenue and human resource base. The anti-drug effort has returned to the Interior Ministry fold and emphasizes social development along with security approaches. A clean government pledge has translation into formal asset disclosures although specific personal item and property values are not assigned. One of the first groups targeted for modernization is the teachers’ union with historic sway over the ruling party, which will test the efficiency orientation contained in the basic campaign platform drawing from the incumbent’s record as Mexico state governor.

The new team circulated at the World Economic Forum in Davos where participants were quick to contrast policies with former darling Brazil’s. Growth and inflation continue to miss targets, and currency direction is unclear although the Finance Minister insists on “avoiding meltdown” through operations at the 2 real/dollar boundary. The current account deficit at $8. 5 billion was the highest ever in December, as both foreign direct and portfolio inflows ebb. The President again ordered lower electricity costs as state banks account for almost half of loans to maintain a double-digit pace supporting the consumer and strategic enterprises. The development institution BNDES’ book rose 12 percent last year to $75 billion, an “historic precedent” according to the annual report. It offers funds at 5 percent, below the benchmark rate, as the system default ratio stands at 6 percent of the total. Private sector banks, whose shares have been pummeled on the exchange, have cut personal and corporate lines and tried to squeeze profitability from reduced overhead. As the government vows to deliver 4 percent GDP growth before next year’s presidential election harsher measures could be in store than the verbal exhortations to help borrowers to date including fixed formulas.

Thailand’s Tentative Tie-Up Traits
2013 February 6 by admin

Posted in: Asia
Thai capital markets continued their Indochina outreach with operations in Laos and Myanmar as the Asean cross-listing platform was also launched and the Bangkok exchange chief previewed a busy IPO backlog. The government in Vientiane plans a baht-denominated issue in the coming months to cover Mekong River power project costs after regulators made non-investment grade sovereigns eligible. Bilateral cooperation already extends to the stock-market with two listings there and to Myanmar’s dormant one, where the Japanese are also assisting with technology needs. At a donor meeting the World Bank agreed on debt arrears clearance as the Asian Development Bank focusing on financial sector modernization resumed lending after decades of absence. Mobile banking may be introduced and mortgage and commercial credit maturity restrictions are due to be lifted. Foreign phone companies have been invited to bid for new licenses as a previous minister responsible for the industry was accused of corruption. The central bank could get autonomy under so-called “stage two” transition changes contained in the aid conference document. The Asean exchanges link will first group 30 stocks in Malaysia and Singapore before Indonesia, the Philippines and Vietnam later join. The full integration deadline is 2015, and index providers have begun to offer regional benchmark products. The trio’s order systems are tied electronically and regulatory harmonization will follow in a later stage. For the Singapore bourse the initiative helped deflect attention from near-recession at home last year on poor construction and manufacturing data. The monetary authority imposed additional property demand measures in an effort to assuage bubble and inflation concerns as the latter cooled to the 2 percent range. Island firms have matched Chinese counterparts in steering FDI to fresh locations including Cambodia, which got $1. 5 billion in 2012 beyond the usual garments pillar. The US President recently visited despite the suspension of multilateral support over land grabs and longstanding criticism of the regime’s human rights record.

Former Thai Prime Minister Abisit is under investigation for his alleged abuses during bloody clashes which closed the capital several years ago as domestic demand further improved in Q4 with record car sales on a solid current account surplus. Infrastructure builders and suppliers are to benefit from a $20 billion fixed investment program, with heavyweight Siam Cement a favorite. P/E ratios are at the core universe average, with dividend yields at 3. 5 percent. Banks are available in New York through ADRs and ETFs, but double-digit annual jumps in consumer lending have drawn caution with local interest rates on hold and supervisors considering targeted curbs. As a fraction of GDP growth in the segment has been the fastest in the area since 2011, aided by the Yingluck Administration’s immediate household transfer and tax cut spree. Non-personal credit in contrast is sluggish despite post-flood reconstruction requests on soiled portfolio exposure from the disaster.

Green Finance’s Kaleidoscopic Calculations
2013 February 6 by admin

Posted in: General Emerging Markets
The World Economic Forum’s Green Action Group, under the leadership of former Mexican President Calderon, urged a heightened private finance push to meet global infrastructure and climate adaptation needs amounting to over $5 trillion annually through 2020 in a report issued at the Davos summit. Clean energy investment has increased at two and a half times the pace in developing as in industrial countries the past five years starting from a lower base. In 2011 renewables allocation was up 15 percent to $250 billion. Government support as a major contributor is now in danger from the US and Europe fiscal crisis and fossil fuel subsidies remain in place as disincentives. Hydrocarbon “fracking” technology discourages alternatives, as emission reduction targets and environmental funding pledges continue to lag original actions. Non-OECD progress outside big emerging economies and projects other than solar and wind are absent. The public-private leverage ratio of 1:3 is under potential, and the World Bank has just estimated the world temperature rise could be worse at 4 degrees Celsius over the next two decades for a population of 9 billion. Power, infrastructure, agricultural and industrial capacity must all be modernized to meet the challenge. The International Energy Agency puts coal, oil and gas conversion cost alone at $750 billion per year, and forest maintenance at the other end of the spectrum comes to $40 billion. To bridge the money gap official and commercial allocation must jump to the respective $125 billion and $575 billion immediate ranges. Risk mitigation across the political, macroeconomic, operational and regulatory landscape should be a focus of bilateral and multilateral efforts as with World Bank MIGA and US OPIC insurance. The document cites successful case studies in Asia, the Middle East and Latin America, and notes that development finance institutions have also been involved through loans, mezzanine debt, green bonds, equity, and dedicated investment vehicles. HSBC calculates the broad climate bond market at $175 billion, with project instruments a specific subset that appeals to conventional asset managers. Pension funds have signed on to a UN initiative to boost share positions in renewable companies, and the Global Environment Facility has provided $10 billion in grants which has seeded thousands of enterprises in hundreds of countries since its 1990s launch.

The work has assumed greater urgency with the phase-out of the carbon emission rights trading scheme authorized under the Kyoto Protocol which has encountered controversy over alleged fraud and lack of transparency as volume dwindled post- financial crisis. The EBRD and African Development Bank have been active catalysts and sponsors in their regions, and a $125 million solar water heater project has been a breakthrough in Tunisia despite the past two years of struggle there. A Green Growth declaration from the 2012 G-20 meeting reiterated the importance of new trade and finance mechanisms for a “sustainable pathway” which still must clear ample underbrush, the panel concludes.

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The IIF’s Salutary Cyclical Salute
2013 February 4 by admin

Posted in: Fund Flows
Under new leadership the Institute for International Finance offered its first capital flow cut for 2013 which despite “greater cyclicality” should modestly bump last year’s almost $1. 1 trillion result. A main risk is rate reversal in the industrial world upending the push as in the Fed’s sudden tightening two decades ago which presaged the Mexican crisis. Among individual contributors, FDI was distinct in a lower forecast to $515 billion, while portfolio equity will jump one-quarter to $100 billion with the $500 billion bank loan and bond category constant. Official lines will increase $20 billion to $55 billion with North Africa programs, which as in Egypt’s case so far are more frequently underwritten by other emerging economies. The latter’s GDP growth should average 5 percent which will favor share allocation also not as subject to anti-speculative controls as currency and fixed-income. Outward Chinese direct and portfolio investment doubled in 2012 to over $250 billion despite slower reserve accumulation as mainland bank foreign assets neared $500 billion. In the former, natural resources diversification is apparent with business and financial services acquisitions, while geographically Hong Kong takes half, with Latin America and Africa also popular as the pace into developing now exceeds developed regions. Emerging Asia as a destination gets 45 percent of private capital into the thirty countries followed by the publication, as India, Indonesia and Korea take share from China. However with European banks in retreat cross-border lending is 25 percent off recent annual levels. Asian reserve buildup has fallen three-quarters to under $150 billion as Indonesia’s current account joins India’s in deficit. In Europe net quarterly inflows were up 50 percent from recent trends, with Russian and Turkish borrowers particularly active. Bank repayment continued in the Czech Republic, Hungary, Poland and Romania while Ukraine lost access pending a possible fresh IMF agreement. Russian ruble debt will experience a spike with non-resident opening, while Turkey alone on the continent will have higher foreign capital demands with its chronic balance of payments gap.

Brazil, Chile and Mexico have likewise become large investment exporters as the control regime in the first has been relaxed within the context of an informal 2 real/dollar band. Peru has leaned against currency appreciation with regular intervention and stricter reserve requirements, and Uruguay imposed a holding period on high-yield notes. Mexican public debt is owned one-third abroad, while Argentina still faces capital flight from its “policy radicalization” and holdout creditor clash. Middle East transition nations have received bilateral assistance from the Gulf and South African bonds brought in a record $10 billion-plus last year following entry into standard world indices. That “technical” move will ease in the coming months as bad mining and rand direction also exact a price. Nigeria in contrast may continue to benefit from index inclusion as well as power and petroleum industry reforms. Enthusiasm will depend on eventual fiscal terms for international oil companies that could be “too onerous,” the group cautions going into heavier fog.

Poland’s Flabby Flexed Muscle
2013 February 4 by admin

Posted in: Europe
Polish shares tried to regain January footing following a GDP growth pause to the 1 percent range and the sudden departure of the Warsaw Exchange boss, who had pushed sub-regional hub ambitions, in a film financing scandal targeting listed companies. Sentiment improved after the government sold another chunk of PKO bank for $1. 5 billion and tapped external bond markets at meager yields, alongside an application to renew and expand the IMF’s flexible credit line for $35 billion over two years. The Fund urged extension of the original 2008 crisis facility in light of Euro area trade and banking “shock vulnerability. ” Manufacturing is “heavily integrated” into the German supply network and two-thirds the financial system and one-third of local debt are foreign-owned. Disorderly deleveraging and global risk appetite retreat remain risks, and to supplement the multilateral backstop the central bank entered a bilateral currency swap with its Swiss counterpart. The regulator has stiffened standards for mortgages and FX loans, and medium-term sustainability within the constitutional 55 percent of GDP debt limit should be enhanced by pension higher retirement age eligibility. Private sector annual credit growth is off two-thirds to 5 percent, and confidence, industrial and retail figures have fallen sharply as official unemployment heads toward 15 percent. Core inflation below 2 percent has allowed a cycle of monetary easing and last year’s fiscal deficit was 3. 5 percent of national income. Bank capital adequacy is 15 percent but NPLs are close to double-digits and parents have slashed support by $15 billion the past year. The statutory debt ceiling could be breached in 2013 with a new small business guarantee program, and supervisors may soon relax household curbs in response to the sluggish economy. The current account imbalance has been covered by direct and portfolio investment and along with the exchange rate is “consistent with fundamentals,” according to the Fund Board submission. The FCL is still needed for international reserve reinforcement, especially as deep and liquid securities markets facilitate Central Europe’s greatest volatility reading. An adverse scenario contemplates large banking outflows leaving a $35 billion funding hole for both 2013 and 2014. The “very strong” policy record again justifies excess quota access, with the successor arrangement to go into place upon the current one’s Q1 expiry, it urges.

The loan-deposit ratio has increased slightly to the 100 percent level as neighbors’ measure has continued to decline from a steeper base. The BIS’ most recent tally shows cross-border withdrawal above 5 percent of GDP in Bulgaria, Croatia, Hungary and Slovenia. Kazakhstan and Ukraine slashed their exposure 50 percent since 2008 and in the Baltics credit availability shrank last year. Domestic deposit expansion has resulted from deleveraging and Basel III rules not only in Poland, but also Belarus, the Czech Republic, Romania and Turkey in a perverse show of strength.

The World Bank’s Nervous Capital Bouts
2013 January 30 by admin

Posted in: General Emerging Markets
In its first developing country prospects publication for the year the World Bank cited improvement in financial market “nerves” with risk price decline although translation to the real economy remains “modest. ” CDS spreads are down on average 115 basis points the past six months with high-yielding Romania, Ukraine and Venezuela shrinking the most and the benchmark EMBI has come in 175 basis points since January 2012. Almost thirty sovereign ratings were upgraded and stock markets advanced double digits. Syndicated lending hit a post-crisis record of near $65 billion in the last quarter as “acute” European and foreign bank deleveraging may be over, particularly in heavily reliant Emerging Europe. FDI numbers were mixed with drops in India, Russia and South Africa offset by Latin America gains as the overall private capital inflow total last year was just shy of $1 trillion for a 10 percent annual slide while outflows in contrast jumped 15 percent. Monetary easing both in industrial and emerging economies contributed to the result and 2013 should see a return to $1. 1 trillion despite a falloff in bond activity. Developing world GDP growth should rise marginally to 5. 5 percent, on better industrial output with the exception of the MENA region from domestic and external demand. China-dominated East Asia will again lead at 7. 5 percent, with Sub-Sahara Africa ex-South Africa second at 6 percent. Global trade expansion halved in 2012 to an estimated 3 percent but Southern hemisphere import and export figures averaged 5 percent. Agricultural, energy and metal commodities values should stay stable but low maize and wheat supplies may create shocks.

A downside Euro-zone scenario would hurt remittances and tourism, and US “fiscal policy uncertainty” could dent emerging market budget and current account balances. A fall in Chinese fixed investment to 35 percent is needed for sustainability and GDP growth in Asian neighbors Thailand and Vietnam would then be shaved half a point. The subsequent drag on raw material prices would harm oil and mining exporters in the Persian Gulf and Latin America. The developing country agenda should again focus on supply-side structural reforms, particularly with high unemployment in several regions. Half the universe runs fiscal deficits of at least 3 percent of GDP, but 80 percent have inflation under 6 percent. In external accounts twenty nations have less than minimal three months’ import cover, and in addition to trade weakness reserves dropped in India and Indonesia due to currency intervention. Productivity gains through liberalization, institutional strengthening, labor and infrastructure upgrades would bring “potentially large” benefits, the report comments. BRIC quasi-sovereign issuers continue to be over-represented in bonds, and equity ipo volume was lackluster last year. Africa followed by Europe has been most exposed to trade finance cutbacks, and prime name borrowing preference will be reinforced by Basel III guidelines. The overseas development assistance outlook is also “gloomy,” below the agreed UN target of 0. 7 percent of GDP, as richer nation providers encounter taxpayer anxiety.

Israel’s Unsettled Future Fits
2013 January 30 by admin

Posted in: MENA
Israeli bonds and stocks held their ground on the surprise second place showing by the new Our Future party founded by a media personality on a populist economic platform, as Prime Minister Netanyahu saw his majority shaved despite a similar promise to cut housing prices. His run-up to a third term was dogged by political missteps as he entered a coalition with a minister later indicted for corruption and angered US transplants by siding with Republican candidate and former consulting firm colleague Romney in the November presidential contest. He endorsed West Bank settlement building in the sensitive E-1 area as two-state talks with the Palestinians remain suspended following a brief armed skirmish and attempts to obtain separate UN diplomatic recognition. Iran policy, often influencing markets in 2012, did not feature heavily in the campaign that focused on pocketbook issues including unemployment and public spending on religious causes. Government debt is high at 70 percent of GDP as S&P affirmed its “A” rating assuming future fiscal prudence after the 3 percent deficit goal was missed last year. Inflation is within the target range as the central bank imposed loan-to-value mortgage curbs before the early election was called. The currency has been stable against the dollar but foreign investors have shunned local Makam bonds since withholding tax was applied. The $100 billion stock market has been buffeted by the mandatory breakup over time of family-run conglomerates otherwise experiencing a cash squeeze. The Dankner group controls IDB bank, insurer Clal, and defense and telecoms companies and the listing is down 75 percent and may no longer be a “going concern’’ according to a filing with the regulator who is also investigating fraud charges. Bondholders are in restructuring negotiations, as a $200 million pilot debt securitization is tried in the West Bank/Gaza coinciding with an urgent donor appeal. The Palestine Stock Exchange worth $3 billion has drawn Gulf and frontier buyer interest as well with low single-digit valuations. The Jordanian dinar circulating there has taken a beating as the Muslim Brotherhood boycotts a new round of parliamentary polls, after the King rescinded subsidy cuts needed to honor the IMF program. The military budget is still secret and exempt from cuts to maintain security force support, as the ruling family’s coffers have also come under criticism for overseas travel.

The Islamic movement was not invited into the power structure as in Morocco, which floated a $1. 5 billion Eurobond and arranged a $6 billion Fund precautionary line several months ago. Despite the Eurozone crash FDI and tourism have been firm as drought slashed overall GDP growth to 3 percent. The CDS spread is 100 basis points inside Tunisia’s, despite the big 9 percent of output current account hole which joins with the energy and food subsidy bill as lingering royal economic pains.