No More Learning

The naira has calmed in the 155 to the dollar range on $35 billion in international reserves. Institutional investors are creeping back to equities with big listed banks slowly disengaging from previous peril, but retail players, burned on margin loan overextension, remain shy. A congressional investigation into the stock market’s post-crisis collapse degenerated into a shouting match between the committee chair and enforcement head over alleged malfeasance in their respective capacities. The exchange chair at the time was forced to resign over fraud and mismanagement charges, and related criminal and civil cases are still in course. Politicians were widely accused of condoning and profiting from improper broker behavior and in a rare guilty plea a state governor who fled the country admitted to $250 million in illicit funds that may have come partially from such involvement to avoid a UK jury trial.

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

Korea’s Breakthrough Trade Trudges
2012 March 27 by admin

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

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

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

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

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

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Francophone Africa’s Stung Barracudas
2012 March 23 by admin

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

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

Mongolia’s Missed Mining Veins
2012 March 22 by admin

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

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

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

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

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

The Americas’ Summit Leaning Ledges
2012 March 19 by admin

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

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

Poor Countries’ Debt Sustainability Releases
2012 March 15 by admin

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

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

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

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

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

Ukraine’s Spilled Cup Condemnation
2012 March 13 by admin

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

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



India’s Ground Crew Grimaces
2012 March 13 by admin

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

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

Bangladesh’s Forsaken Vortex Victims
2012 March 8 by admin

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

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

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

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

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

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Brazil’s Unseaworthy Flotation Attempts
2012 March 1 by admin

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

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

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

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

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

Israel’s Stretched Strike Capability
2012 February 27 by admin

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

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

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

Posted in: MENA
UAE shares rose through mid February after MSCI’s upgrade postponement as Abu Dhabi committed to proceed with showcase projects including an artificial island with delays after extending another $5 billion lifeline to ailing property developer Aldar in which wealth fund Mubadala has a large stake. Debt restructurings have swept that emirate as well as Dubai, with a halt in construction hitting family-run groups and private capital providers. Both local and foreign banks are exposed as in neighboring Dubai, with entire country claims two-thirds from Europe coming to $150 billion by the latest BIS data. Emirates NDB has one-quarter of its loan book with Dubai’s government-related corporate complex as total debt is $100 billion or 125 percent of GDP, according to Moody’s. $15 billion must be repaid this year as serial reschedulings following the DW deal are under negotiation and may involve bondholder haircuts for the first time. The international financial center and Jebel Ali free trade zone each have large redemptions upcoming that officials intend to refinance without seeking Abu Dhabi’s aid. Real estate values are at half the 2008 peak and economic growth is put at 3 percent even with the benefit of Arab spring diverted financial services, property and tourism flows. The twin stock exchanges are still attempting consolidation on lackluster volume that brought a wave of broker closures in past months. Their size ranks behind other GCC members, with Qatar at over $100 billion capitalization only kept at frontier status by festering foreign ownership limits.

In Lebanon stocks are flat on a 10-15 percent luxury real estate correction as growth was just over 1 percent in 2011 on slow formation of a government coalition and the fallout from Syrian conflict next door. Commercial bank lines at risk there through a half-dozen subsidiaries amount to $7. 5 billion and Middle East-North Africa financial and current account links otherwise account for 40 percent of the total, according to the annual IMF Article IV report. Headline inflation was 5 percent last year and may stay up on wage and VAT hikes as a history of primary budget surpluses fades. Electricity and infrastructure spending represent big outlays and with public debt at 135 percent of GDP covering the overall deficit has invited “difficulties” with banks reluctant to take short-term paper. A $1. 5 billion Eurobond operation combining a swap and new issuance several months ago was “appropriate” in the Fund’s view, but local interest rates should rise to ensure pound liquidity. The exchange rate peg has provided stability but lifts the bar for unrealized business and labor competitive changes reflecting another mass of regional drift, the analysis comments.



Pakistan’s Supreme Dilemma Dare
2012 February 21 by admin

Posted in: Asia
Pakistani shares stayed detached from the rest of Asia’s run-up as the IMF, which dropped its stand-by arrangement on poor tax compliance, sounded the Article IV report alarm on “considerable downside risks” mirroring the political standoff between the Supreme Court and government over corruption charges and military infighting over fighting the internal and cross-border Afghan insurgency. The prime minister has been held in judicial contempt as President Zardari struggles to complete his term on ill health and slim parliamentary party control. Relations with the US have soured after Bin Laden’s elimination, with a NATO report now citing collaboration between the armed forces and Taliban, and the former ambassador to Washington under house arrest for allegedly warning of a civilian overthrow plot. Bilateral security aid, which was previously under scrutiny for accounting irregularities, has been frozen pending a joint State-Defense Department policy review. Over the upcoming election cycle, new economic assistance proposals will remain sidetracked such as import duty relief and additional risk guarantee and venture capital support from OPIC, which is to be reorganized into a Cabinet-level Trade ministry under an Obama Administration initiative. In the past fiscal year GDP growth of 2 percent was three times under the threshold need to absorb fresh labor market entrants. Double-digit inflation persists and poverty incidence is “worrisome” as the central bank has become too “accommodative” on budget deficit financing, according to the Fund. It has spent $2 billion in reserves in recent months propping up the rupee as the external account deteriorates. This year’s GDP expansion should be 3. 5 percent on 12 percent consumer inflation, but slower remittances and IMF reimbursement will saddle the balance of payments and the fiscal gap will not meet the 5 percent of output goal “absent corrective measures. ”

In its recommendations the lender urged continued post-program monitoring and tax base broadening which could include allowing provinces to raise revenue. Monetary tightening and additional exchange rate flexibility are overdue, and bank supervisors lack sufficient independence as they try to cope with higher industry NPLs. Power shortages are still a critical bottleneck and plans to develop hydro-electric projects are on hold pending rule changes and international commercial and official loans. Investors have exhorted the authorities to copy lessons from the region’s other Muslim giant, Indonesia, which was just awarded another top-notch sovereign upgrade after distressed status a decade ago post-Asia crisis. The economy is advancing at a 6. 5 percent clip on consumption and commodity exports and has just passed a long-awaited infrastructure facilitation package designed to trigger a $150 billion building wave in the next two years. However graft and violence pose literal roadblocks there too as a major oil refiner also defaulted on an external bond as a supreme challenge, promoters admit.

The Baltics’ Beguiling Bragging Rights
2012 February 21 by admin

Posted in: Europe
With the rest of Europe foundering Lithuania started the year with a major issue and Estonia reaffirmed its euro entry decision as Latvia exited its IMF program with good marks and welcomed further formal monitoring. Unlike cross-border owners elsewhere Scandinavian giants like Swedbank reiterated their intention to keep operations in place to participate in recovery and apply debt workout expertise. Norway’s sovereign wealth fund hinted at greater sub-regional public and private equity exposure in a continued diversification strategy, and pioneer managers like East Capital highlighted smaller company healthy earnings as near-term portfolio favorites. In their final review Latvian officials stressed the intention to meet stricter revised EU stability and growth pact criteria for single-currency eligibility by 2014. Fiscal and inflation performance as well as business, labor and education conditions will be improved, despite the temporary deposit and payment freeze imposed by Krajbanka’s malfeasance and shutdown which also affected foreign units. GDP growth could halve to 2. 5 percent this year on “trading partner stagnation” as the current account reverts to slight deficit. Inflation should drop from 4 percent to 2. 5 percent as nominal wages continue to shrink with unemployment at 15 percent. The budget gap will narrow to 3 percent of GDP on better tax compliance, a financial stability levy increase, cuts in central and local government spending, and social security adjustments. A top priority is “fighting the grey economy,” according to the letter of commitment even though the revenue result is “uncertain. ” A fiscal responsibility law will enshrine medium-term discipline despite calls on state coffers to honor Krajbanka’s obligations and assist Baltic Air alongside commercial investors. These stakes will be sold off in future privatizations under an overall government enterprise good governance thrust which could place private pension funds in an enhanced oversight role.

Domestic borrowing will preserve benchmark maturities and combine with a return to international capital markets that began with a June 2011 Eurobond in an attempt to minimize rollover risk. The narrow band exchange rate will stay intact until Euro adoption with interest rates converging toward ECB levels. Higher bank capital standards will follow new EU regulations and consumers and supervisors will receive additional powers and protections. Troubled institutions from the 2008-09 period will continue along their resolution path with the Mortgage Bank to be divested and replaced with a s single development lender and Citadele to get final bids by the end of Q1. The residual Parex Bank is still the subject of numerous lawsuits and criminal inquiries against the former majority shareholders. International hedge funds have accused the government of bungling investigations and harming their interests in a record unworthy of boasting.

China’s Shrill Shanghai Hub Hullaballoo
2012 February 20 by admin

Posted in: Asia
Chinese shares joined other large market laggards with a roaring start to the Year of the Dragon on a break in foundering macroeconomic data and a slew of securities initiatives aimed at domestic and foreign investors. The main regulator highlighted a push to restore confidence at the annual Communist Party financial work conference with plans for new IPO procedures and retail account protections, while hinting at enlargement of FII quotas. Previously the National Social Security Fund announced increased equity allocation and local government pension plans may also be authorized to participate directly. Liquidity injection through robust money supply and bank lending figures supported enthusiasm, and Hong Kong was reassured that the “door would open wider” for smaller state firms to list there. The outreach came as renimbi deposits in the offshore center began to fall as appreciation was seen to crest and dollar safe haven switching jumped with the spreading Eurozone crisis. The planning agency along with Shanghai authorities then revised their global hub outline for mid-decade to include yuan clearing and trading as a core business pillar through establishment of benchmark rates and derivatives. They reiterated plans to attract foreign listings as an “international board” is soon to go operational although issues of broader capital account and currency convertibility were unaddressed. Among innovative products ETFs and REITS will be tested, and partnerships will be explored with overseas exchanges following agreement among BRIC members to cooperate on information and access provisions. In Beijing, where all the industry supervisors are based, officials vowed to strengthen standards while ensuring that prevailing risks, including in property and provincial loans, were “controllable. ” State lenders with single-digit price-earnings valuations reported good profits, and according to the BIS have deepened trade and syndicated credit penetration in Asia in particular with European escape.

They made headlines with arrangement of a $1 billion facility for Reliance Communications run by Indian billionaire Ambani. His prominent group aided in obtaining another early-year turnaround for shares there with a $2 billion buy-back as the rupee rebounded to the high 40s against the dollar with minor monetary easing on steady inflation and exchange opening to foreign individual investors. Non-resident Indians have poured money into high-yield bank deposits, and FDI liberalization resumed with a modified plan for retail chain entry after the original design met with small trader and opposition party outcry. With GDP growth slipping to 7. 5 percent, officials intend to rein in the fiscal deficit which has regularly exceeded responsibility law bounds. As the second Singh administration winds down, fresh physical infrastructure and anti-corruption overhauls have been signaled with all suspect telecoms licenses being revoked in a repudiation of past prerogatives.



South Africa’s Mooted Mandela Moment
2012 February 20 by admin

Posted in: Africa
South African shares pared their double-digit gain on anxiety over a weekend “nationally important” announcement inviting rumors of new capital controls or mine nationalization, despite the ANC’s rejection of such policy at its latest gathering in favor of gradually higher taxes or state control. President Zuma, after unveiling record infrastructure spending despite the 5 percent of GDP budget deficit to combat 25 percent unemployment, instead revealed a fresh currency design that will replace game animals with portraits from the life of apartheid opponent and former two-time president Mandela. While the change was popularly applauded in honor of the nonagenarian hero, the inconsistency and secrecy surrounding it repeated a frequent business community criticism of the government at a time when the rand in particular now around 7. 5 to the dollar is regularly buffeted by both domestic and global risk sentiment. The ruling party tried to strike a compromise with militants over commodities expropriation, but industry leaders remain wary especially after the launch of a public exploration company last year and labor union insistence that pension funds take more activist controlling stakes in big private multinationals. FDI is lackluster in the sector, where the country ranks just a few notches above neighbor Zimbabwe in international attractiveness comparisons. The macro-economy for engagement is likewise ambivalent with GDP growth due to fall under 3 percent this year and inflation currently at twice that figure leaving the central bank 5. 5 percent benchmark rate intact. With close Eurozone links and a recent sovereign downgrade external commercial borrowing will be kept to a minimum, as contingent liability stress from the state power utility also mounts. At the ANC’s founding centenary officials again embraced the causes of anti-corruption amid headline scandals and of education reform after an applicant stampede to get a university place, but participants also widely noted the vast unfinished agenda to attain better living standards.

Namibia, which has a rand peg and was recently reclassified as an upper middle-income country, is also under harsher investor scrutiny after its maiden sovereign debt issue in 2011. Mining earnings from diamonds, uranium and other endowments will bring 4 percent GDP growth, but international reserves are below the minimum threshold three months’ import cover and the jobless rate is 40 percent. Fiscal stimulus may be too expansionary according to the IMF, and housing prices which were up 20 percent last year mainly from cross-border capital flows may place the South African-dominated banking system under pressure. Although the securities market is tiny, non-banks have proliferated and a consolidated supervisory agency awaits additional enforcement powers to display its own metal bearing.









Romania’s Chafing Chill Wind
2012 February 15 by admin

Posted in: Europe
Romanian bond issuance was doubled in January as authorities grappled with weeks of worker anti-austerity hostility amid record low temperatures and snowfall. The creaky coalition government may have to activate its IMF precautionary line and face another round of no-confidence votes as GDP growth could halve to 1 percent on slumping exports, 70 percent headed to the EU. The World Bank may chip in $1 billion in budget support tied to further privatization, labor and energy sector efforts as bank lending, dominated by foreign-owned units remains flat. Higher portfolio inflows will be needed to bridge the stubborn current account gap and were urged by famed Franklin Templeton equity fund managers hired to oversee listed state investment pools. The banking system is likewise under strain in Bulgaria which entered the EU at the same time as non-performing loans are 15 percent of the total. Greek parents own the biggest operations and regulators have tried to calm withdrawal fears by citing their continued profitability. A coal industry strike was settled as a minority stake in the state energy company is to go on the block by year-end. A sovereign Eurobond issues is slated for the coming months, and the country offers a precedent for GDP-linked paper that may feature in an eventual stinging private creditor “haircut” for Greece under negotiated non-default swap terms. The so-called Troika insists on a nominal 3. 5 percent level coupon to promote debt sustainability as they mull a second bailout package before a steep looming March commercial repayment. They have however split on the possibility of the ECB absorbing losses under equal treatment practice, which the IMF has posed as a workout element. Athens even under caretaker technocrat rule has routinely missed key deficit and structural targets, and the Germans have floated the idea of an external fiscal overseer with new elections scheduled for April.

Peripheral bond panic is now entrenched in Portugal, which like Greece was in the emerging market category pre-euro, as 2-year yields were 20 percent before central bank buying. In an historic twist Brazilian investors and advisors have flocked there to share their experience and scout prospects. Angolan banks linked to its long-serving president have acquired assets as the incumbent may be closer to designating a successor after naming the state oil monopoly head as a key economic planner. The country entered an IMF program after the 2008 crisis, mirroring the path followed by Hungary which has reaffirmed second rescue intentions with dilution of financial supervisor consolidation plans despite Article IV report reference to “ambitious objectives” that may clash with the arrival of “adverse scenarios,” especially if mainstream political and policy tendencies are cast as enemies.

Egypt’s Ponderous Pound Pounding
2012 February 15 by admin

Posted in: MENA
Egyptian shares retraced half their 2011 index drop as parliamentary elections entered consecutive phases with predicted Muslim Brotherhood dominance and talks resumed with the IMF on a $3 billion loan which may come with lighter conditions but no longer the no-strings package dangled in the immediate aftermath of Mubarak’s overthrow. Since then foreign reserves have more than halved to $16 billion on capital outflow, poor trade and tourism earnings, and central bank currency defense to keep the pound in the 6 to the dollar “stability” band. With only enough on hand to cover several months’ imports, non-essential goods buying will be limited. The fiscal deficit is running at double-digits as a fraction of GDP as the government turns to the World Bank, other development lenders and GCC sovereigns for support. The last group has put money into domestic Treasury bills but auctions continue to be undersubscribed as yields long ago breached 15 percent, and buyers insisted on a switch to dollar-denominated issuance. Local banks have increased their exposure 50 percent over the past year as deposits barely rose. Public sector borrowing has sent overall debt to 80 percent of GDP as officials contemplate new versions including diaspora and sukuk bonds to meet rollover requirements. Recent Fund analyses have highlighted exchange rate and institutional investor rigidities that may presage policy shifts and reprogramming on these fronts as the basic economic model is in flux with the gradual military handover. Although the army has chipped in with a $1 billion contribution from its assets to the reserve position, property and other deals completed under the previous regime have been annulled by courts as prominent business executives, including the head of lead privatization adviser EFG-Hermes, have been barred from leaving the country pending investigation.

Tunisia too is scrambling to maintain its longtime dinar peg as it faces a $650 million Eurobond redemption coming off recession and a 7 percent of GDP balance of payments gap. Unemployment is near 20 percent and 200 foreign-owned companies closed last year, according to the chamber of commerce. To mobilize funds a $500 million T-bill placement is set with Qatar as a $20 billion infrastructure and social spending plan presented at the Deauville G-8 summit still awaits pledges. Like its North African neighbor flotation of Islamic paper at home and abroad is actively under consideration. However the IMF in its latest review of pioneer Malaysia, which managed a record $2 billion external sukuk in 2011, noted that the segment was “unlikely to be spared global shocks. ” International banks have not pulled back from there to the same extent as in the MENA zone hanging from slender pegs.

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FDI’s Forgotten Near-Frenzy
2012 February 9 by admin

Posted in: Fund Flows, General Emerging Markets
UNCTAD’s January update hailed a 15 percent global FDI rise to $1. 5 trillion, half going to developing and transition economies in a record high. Developed world performance was mixed with Greece and Germany down, but Italy and France receiving a boost. Latin America outstripped Asia’s total by $10 billion at $215 billion as flows increased at 4 times China’s pace. Indonesia, Malaysia, Thailand, Brazil and Colombia experienced spikes in their respective regions. Natural resources drove the Latin story with continental reach achieved with large market establishment and expansion. Offshore Caribbean centers also benefited from safe haven wealth allocation over the crisis period, which diverted interest from Europe outside big energy cross-border deals in Russia, according to the Geneva-based UN agency. The Middle East-Africa continued to fall on political and social unrest, although Saudi Arabia and South Africa hosted new projects. M&A has surpassed greenfield activity as the major catalyst, and 2012’s picture is of “cautious optimism” looking at underlying GDP growth and multinational company cash flows. About a dozen transactions in the $5-10 billion range were completed in emerging markets, and the pattern should continue and deepen over the medium term, the review predicts.

Colombia’s oil boom has coincided with President Santos’ entry into office and restoration of the sovereign investment grade rating which recently enabled 30-year bond reopening at an unprecedented 6 percent yield. Three-quarters of buyers were from the US, as European and Asian investors also focus on portfolio and mining investment potential. GDP growth is officially set near 5 percent, although inflation has also slipped to the upper-end target prompting another 25 basis point central bank rate bump. A minimum wage hike will soon kick in to maintain price pressure, but is part of labor reforms slowly eroding traditional double-digit unemployment which fueled crime and security problems. The free trade agreement finally approved in Washington late last year should favor fresh participation, and stands in stark contrast to the stance in adjoining Venezuela, where President Chavez has reacted angrily to international arbitration awards with plans to exit the World Bank’s dedicated tribunal. Exxon won a near $1 billion judgment over seized property as one of numerous petroleum company claims against the government, despite the original demand running 5 times that amount. The pullback was widely seen as a pre-election gesture as he also reshuffled the cabinet to tilt toward military and ideological loyalists. For the first time the opposition appears to be unifying around a candidate to be formally tapped in February primaries with Miranda governor Capriles in the lead. Bond prices rallied on the prospect of a credible Chavez alternative, although he still wields the administrative and budget tools to ensure powerful direct investment in his voting future.

Myanmar’s Muddy Modernization Maw
2012 February 9 by admin

Posted in: Asia
A cascade of Western officials and investors, including hedge fund titan George Soros, visited long-shunned Myanmar as a diplomatic thaw was signaled and the IMF released a detailed report on recent economic performance and immediate challenges. Democracy campaigner and Nobel peace prize recipient Aung San Suu Kyi remains free from house arrest and will run in April elections after her party abandoned its previous boycott stance. A mass amnesty for other political detainees has ensued and a cease-fire was signed with a major ethnic rebel group. The new head of the military government has been praised as a “genuine reformer,” and international commercial sanctions are under review in Washington, Brussels and Asian capitals and could be lifted later this year. Representatives from the Korea Stock Exchange, which has offered funding and technical assistance throughout Indochina, have launched consultations with local counterparts as the Fund urged comprehensive banking overhaul including interest rate liberalization, collateral strengthening and rural network extension. Other overriding structural imperatives are state enterprise privatization and currency system unification which can improve fiscal and monetary balance, according to the mission.