No More Learning

However double-digit inflation persists and the exchange rate was again tweaked to 7. 6/dollar as the Canal flow was diverted by sharper currents. Saudi Arabia’s Granular Gearing Grist

Saudi stocks which barely budged on foreign access permission struggled to stay positive on looming competition from domestic bond issuance resumed after a decade hiatus to cover budget spending based on original $100/barrel oil break-even value. The monetary authority will raise $25 billion by year-end though local bank placements and has already drawn down $75 billion in reserves which now stand at $675 billion to bridge this year’s estimated $125 billion deficit. GDP growth will dip below 3 percent, which may endanger the goal of reducing 5 percent unemployment and trigger another wave of guest worker expulsions as the new royal leadership seeks its footing. Public debt is negligible at 1. 5 percent of GDP but a crisis occurred in the 1990s after the ratio hit 100 percent. The government has vowed to stagger maturities and create a yield curve as it plans to invite overseas buyers and ratings agencies to participate in market development. State utility companies have tapped the external sukuk space and experts predict the sovereign will soon follow given the limited individual and institutional investor base at home. UAE bonds have been well-received and recently rallied on fuel subsidy elimination and the prospects for Iran’s commercial re-integration. Energy deregulation will save almost $4 billion and solidifies the investment-grade rating, Moody’s asserts. Despite four years of sanctions the Emirates is the number two trading partner after China as a banking, air and free-zone hub. Half a million Iranians may live in Dubai and have been active in property speculation and commodity dealing in particular.

In the region Tunisia is preparing to float official and corporate sharia-compliant instruments with Islamic Development Bank help with banks and leasing firms up first after rules are finalized. Its MSCI stock market performance was off 5 percent through July after the Sousse beach resort attack killing forty visitors, as tourism contributing 7 percent of GDP as the main employer continues to nosedive. The ruling coalition with sweeping parliamentary control passed stiffer security laws posting patrols at hotels and sites with funding assistance from the US and Europe as the protectionist legacy of the Ben Ali era remains in place. According to the World Bank 60 percent of the economy faces entry barriers and phone costs are twenty times the regional average due to controls. 40 percent of jobs are informal in response to administrative and tax burdens often a legacy of the French colonial period. State banks in particular could be cleaned up with partial privatization but the process has historically been slow and lagged neighbors.

Egypt lost 10 percent on the MSCI core index despite record Suez Canal earnings the past year at $5. 5 billion and its recent expansion as part of a larger industrial zone project championed by President al-Sisi. Ships will now be able to cross in both directions and waits should fall from ten to three hours. The venture was financed from $8. 5 billion in retail investment certificates which also qualified holders for preferential loans as private sector credit jumped 15 percent on an annual basis. However double-digit inflation persists and the exchange rate was again tweaked to 7. 6/dollar as the Canal flow was diverted by sharper currents.

Corporate Defaults’ Devilish Plot
2015 August 12 by admin

Posted in: General Emerging Markets
The mid-year high-yield CEMBI corporate default rate at 2. 5 percent was on track for 2015’s 5 percent projection, with 20 “fallen angels” already with the rating upgrade/downgrade ratio at 0. 3 according to index sponsor JP Morgan. All regions were hit with Brazil’s half dozen the most names while Ukraine’s issuers have not yet felt the brunt of the pending sovereign restructuring. Distressed exchanges have so far outnumbered bankruptcies for higher recovery rates at almost 50 versus the historical 35 percent. Almost 15 percent of the universe currently trades at the problem 70 cents/dollar handle with Venezuela’s $35 billion in PDVSA bonds 95 percent of the total. Outside energy, metals and mining is the riskiest sector and through July rating downgrades at over 250 were almost triple upgrades. Most of the falls from investment-grade to junk were in Latin America but China and Russia were also caught in the trend, while Mexico and Korea had net improvement. By volume real estate has been most default-prone led by Kaisa’s collapse and failed merger attempt, while financials have traditionally dominated since 2010. Just prior to the episode the rating has been in the lowest “B” category, and since the 2008 crisis 20 countries have experienced non-payment.

The greatest corporate pressure may now be on Brazil with likely sovereign demotion to speculative grade in 2016 on worsening recession and public debt and the effects of the Petrobras and related state corruption scandals. An estimated $15 billion in forced selling from active and passive investors could result, about 10 percent of prime-quality bonds. All three major raters have assigned negative outlooks and banks and companies would be expected to follow Petrobras into the high-yield space where only a few feature in US “crossover” indices. Bank of America/Merrill Lynch in anticipation will recast its benchmark with a no-emerging market issuer option, which would leave the field to dedicated investors now underweight with the cascade of leverage and investigation woes. Removal from the CEMBI investment-grade would benefit other countries with Korea and the UAE increasing their top portions to a combined 15 percent.

China’s equity wipeout and intervention has transferred the local funding burden back to debt, with shadow banking as a main bond route down to one-third of intermediary activity. The PMI has reverted to 50 and foreign investors are now the target of high-frequency and short-selling probes to quash broad allocation appetite. Real estate monthly sales are still slack in second-tier cities and capital outflows persist with -50 billion international bank lending in Q1 according to BIS figures. Hong Kong is going ahead with long planned Chinese railway and asset management company IPOs due for lackluster reception as Russian banks and companies also looking there to escape Western sanctions may find the channel blocked. At home the central bank dropped interest rates another 50 basis points but indicated future moves would be minimal with the stronger ruble and double-digit inflation. The US Treasury stiffened boycotts and freezes on Ukrainian firms and individuals tied to the former regime as the next IMF $1. 7 billion chunk was received and bondholders conceded the prospect of a small haircut for the first time in talks. However public confidence in the government has also been scalped, with Prime Minister Yatseniuk’s approval in single digits.

Addis Ababa’s Development Declaration Decathlon
2015 August 12 by admin

Posted in: IFIs
The third UN Financing for Development forum in Ethiopia’s capital produced a 40-page “outcome document” for consideration in the September General Assembly covering private capital themes, as the dense prose masked a more accepting but still skeptical tone 15 years after the “multi-stakeholder consultative process” was launched. Official aid and redefinition of the original Millennium anti-poverty goals with a 2015 deadline remained a core focus, and the environment was also in the spotlight in the run-up to the Paris carbon emission treaty conference at year-end. It calculated a $1 trillion developing country infrastructure funding gap and called for a global forum to coordinate public sector and commercial efforts which would include new players like China’s AIIB and the African Development Bank’s “50” fund. Domestic tax mobilization was a major thrust with an appeal for information-sharing between revenue authorities, including in offshore centers, and crackdowns on money laundering and illicit outflows. On financial regulation the participants urged risk-based approaches across the spectrum from microcredit to international banking, and steps toward universal customer access and literacy. They noted remittance charges remain steep and should fall to no more than 5 percent by 2030.

On domestic capital markets long-term bonds and insurance are lacking and the declaration committed to stronger supervision and clearing and settlement. Regional markets are an option to obtain scale, and at the opposite extreme poorer countries have yet to establish securities activity. Foreign portfolio investors have taken large shares in local debt markets over the past decade, and cross-border cooperation can help manage volatility. Pension and sovereign wealth funds in both advanced and emerging economies can increase infrastructure investment so that the clean energy annual $100 billion tab by 2020 is met. Trade finance is often unavailable and the WTO and its members should expand guarantee, factoring and small business programs.

Debt sustainability remains an issue as the last candidates for HIPC relief are approved by bilateral and multilateral lenders. A central registry on sovereign restructurings is overdue and the UNCTAD principles on responsible treatment have not been widely honored. The Paris Club has launched a dialogue with private creditors, and the IMF and UN are both exploring new burden-sharing formulas, but the signatories are “concerned” over bond holdouts. The pari passu and collective auction clause changes recently adopted in prospectus language are helpful but developing country borrowers may require facilities for international legal assistance to redress the capacity and resource imbalances in negotiations. Special provisions should also be triggered in the event of natural disasters, including disease outbreaks as in West Africa, and distress could be worked out in debt for health swaps and similar mechanisms that were popular in previous crises.

IMF governance reform remains a priority despite the refusal of the US Congress to pass 2010 quota reallocation proposals, and emerging market “voice” is also under-represented at the Basel Committee and as counterpoint to the main global rating agencies. The standard-setters should focus attention on ways to hedge and avoid economic damage associated with commodity price swings. Shadow banking may pose systemic risks in an unmonitored chain of credit and securities transactions, and upcoming UN sessions should try to illuminate data and knowledge gaps, the Addis Ababa roundup adds.

Mexico’s Repeated Knockout Rounds
2015 August 4 by admin

Posted in: Latin America/Caribbean
Mexican stocks further slid and the peso was off almost 20 percent the past twelve months approaching 16/dollar, as the first private hydrocarbon company bidding round was a disappointment with only two out of fifteen fields soliciting interest. Eight auctions were spurned altogether and participation was half the demand predicted by officials even as breakeven prices for the deposits were $20-25/barrel. Pemex stayed away as it tries to conserve cash after a $6. 5 billion Q1 loss, and its one-third budget contribution will be absorbed by $8. 5 billion in spending cuts winning plaudits from bondholders but anger from voters who reduced the ruling PRI take in state elections to 29 percent and backed an independent as governor. Construction and manufacturing weakness linger for 2 percent GDP growth, and 3 percent inflation is within the central bank target but the central bank could hike the benchmark rate to 3. 5 percent by year-end in mirroring US Federal Reserve direction. The teachers union has fought back against reforms and law and order missteps were reinforced with the jailbreak of a notorious drug lord for a second time. Currency short positions are at a record in weekly commodity futures data as daily local spot and forward volume average $10 billion at the same level as Brazil.

There Petrobras will loosen rules for the pre-salt fields to invite foreign and private investment as it scaled back its 5-year capital outlay plan by one-third to $130 billion with the “laundry” investigation now implicating the CEO of construction giant Odebrecht as influence peddling suspicion also reaches former President Lula. Prosecutors charge that the bribery balance sheet write-down to date is too small as overseas pension funds pursue class action suits in US courts. President Rousseff’s approval rating is in single digits and parties may withdraw coalition support and consider impeachment if allegations relate to her decade-long Petrobras leadership. She visited Washington and New York with her economic team as fiscal adjustment was downgraded to the likelihood of no primary surplus with 1. 5 percent output contraction this year. Gross public debt may head to 70 percent of GDP as ratings agencies contemplate sovereign demotion to junk. Corporate downgrades led the emerging market pack as Fitch warned the country was a main source of global contagion. Monetary policy has also failed to quell 9 percent inflation despite the 14 percent Selic rate as the real moves to 3. 5/dollar with new swap intervention limits.

Consumption and fixed investment have followed commodity exports into the tank as unemployment and bad retail loans worsen. State savings giant Caixa is in talks to sell part of an estimated $7. 5 billion distressed portfolio to foreign funds including JP Morgan after its partnership with Gavea, founded by a former central bank head, was rearranged. Finance Minister Levy had a heart scare before travel abroad sparking speculation about a replacement as a $70 billion medium term infrastructure program was unveiled to minimal response in advance of the 2016 Olympics. FDI may be only half last year’s at $50 billion despite incentives for transport engagement. Electricity remains a protected sector even as the securities regulator fined Electrobras for flagrant corporate governance lapses. According to their professional association debt and equity activity is at a 5-year low as credit boom and scandal shocks suffuse the network.

The Next President’s Development Blueprint Blues
2015 August 4 by admin

Posted in: General Emerging Markets
The Center for Global Development released a lengthy briefing book of proposals after a year-long effort to shape the agenda for the White House in 2016, as it decried a “narrow” aid focus not harnessing private capital and remittance flows in the face of competing bilateral and multilateral providers from the developing world itself. The group lamented that the US for the first time in decades will not be a member of a global institution, the $100 billion AIIB founded by China, in part reflecting emerging market frustration at IMF quota reform failure. Assistance is now dwarfed by not just overseas direct and portfolio investment but government revenue in all but the poorest countries, and although emergency and humanitarian relief needs continue collective action on climate, agriculture, health and other areas remains an unmet challenge. The report urges an “ambitious” prosperity and security strategy that can revamp policies with new political leadership without billions of dollars in fresh funding. It believes Congress and the business community can back the direction as the output will be circulated among the numerous presidential campaigns.

The case for a unified Development Finance Corporation was repeated to combine OPIC with other agencies and use the range of debt and equity powers. The Export-Import Bank was left out of the structure as its charter was not renewed due to Republican lawmaker opposition. On immigration a guest worker agreement could be readily struck with Mexico and broader global skills partnerships could be forged. On trade AGOA extension and modification should be a priority, and as the Trans-Pacific and Atlantic accords enter final negotiations WTO efforts can be revived although the Doha Round must finally be “buried. ” On data transparency initiatives such as in extractive industry could be expanded and supplemented, with tax information to be exchanged beyond the current OECD framework and beneficial owners unmasked particularly in offshore havens. Company natural resource payments could also be better flagged under provisions of the 2010 Dodd-Frank Act pending a formal SEC disclosure ruling, and the State Department and other aid givers have yet to furnish statistics for an integrated Dashboard website.

On tropical forests, the model could be strengthened for the 2020 private sector alliance of commodities firms to limit damage and compensate preservation. The 2014 Power Africa program could benefit from enabling legislation and clearer authority including the use of traditional fossil fuels where renewables are too cumbersome to develop. USAID needs a “top to bottom” review in the incoming administration with its $12 billion spread among 125 countries, but only 10 getting half the budget. Performance metrics are lacking with a ranking in the bottom half of worldwide donors. National security importance should be considered but congressional mandates can be eliminated and presidential overarching visions should be checked against existing program outreach. The Millennium Challenge Corporation after a decade of operation could still improve cost-benefit analysis, criteria flexibility and grant results and it has tended to emphasize infrastructure over other high-impact purposes. The paradigm generally should shift to paying for outcomes and the multilateral component of appropriations should revert to the 20 percent range to achieve a multiplier effect and bridge the partisan divide, the collection concludes.

The BRICS Bank Utilitarian Undertaking
2015 July 28 by admin

Posted in: General Emerging Markets
The New Development Bank with $50 billion in initial BRICS capital held its first organizational meeting in Uta, Russia with the former head of Indian lender ICICI appointed president. He will seek local and external credit ratings for borrowing and consider requests from oil giant Rosneft and other companies under Western sanctions. Banks could also apply as consolidation intensifies among the 750 competitors remaining since a central bank regulatory crackdown. The mid-market has been active in particular as industry assets fell 7 percent in the first half and retail NPLs hit 7. 5 percent. State leader VTB, which is still in the process of absorbing Bank of Moscow, estimates half the field could disappear by end-decade. Along with Sberbank it got $17 billion in government recapitalization to withstand the commodities and embargo crunch, as the benchmark interest rate remains steep at 11. 5 percent. Capital flight was again $20 billion in Q2, just above the current account surplus as the ruble continues to strengthen alongside $7. 5 billion in dollar buying since May. President Putin declared that fluctuations were now “acceptable” after last year’s plunge as the free-floating exchange rate goal is indefinitely sidelined.

Russia and Brazil among the group are in recession and South Africa is close, as the IMF downgraded the emerging economy growth forecast to 4 percent. EPFR’s equity fund data tell another grim story of $21 billion in first half outflows across all regions led by Asia’s $8 billion. The dedicated BRICS strategy was off $1 billion mirroring other acronym approaches, and the frontier class also lost $850 million. By country China and greater China exit was $19 billion even as weekly numbers turned positive before the mainland crash and trading suspension. India was the runaway inflow destination at $9. 5 billion, followed far behind by Russia’s $425 million. Brazil and Mexico each slipped $1 billion and Korea was another spurned Asian market (-$3. 5 billion). Africa’s appeal also ebbed (-$180 million) as the developed world dominated the positive category with Europe and Japan together receiving over $100 billion. By sector energy regained popularity and consumer goods were shunned, while financials took in a modest $500 million. Bond funds overall led by the US were allocated $100 billion, but emerging market local currency was negative as hard currency gained slightly.

The fixed-income funk was also evident in the Islamic sukuk space, where issuance through July was $30 billion less than the $67 billion in 2014, mainly due to Malaysia’s choice to use other instruments for liquidity management. According to S&P the Islamic Development Bank may partially fill the void, but this year’s total will drop 40 percent. Outside Malaysia first half activity softened 10 percent as Gulf States reconsidered programs in light of lower petroleum revenue. Saudi Arabia and the UAE are likely to refrain the rest of the year as Oman and Bahrain tap the market. Indonesia and Hong Kong returned and a number of African candidates, including Egypt, Tunisia, Kenya and Nigeria are in line. The Basel III liquidity ratio will spur medium term growth for top-tier sharia-compliant assets, the agency believes, even as standard definitions and structures are not yet solid.

Kazakhstan’s Carefree Corridor Talk
2015 July 28 by admin

Posted in: Asia
Kazakhstan issued EMEA’s biggest sovereign bond this year as a dual tranche $4 billion instrument was oversubscribed at 5-6 percent yields and US buyers diversified the investor base. The return did not help equities down double-digits on the MSCI Frontier Index and came as the exchange rate corridor was nudged from 188 to 198/dollar despite consensus devaluation projection to 220-230 in line with Russian ruble adjustment throughout the region. International reserves in two funds are almost $100 billion, but the central bank has spent about one-fifth that amount the past year supporting the peg. The IMF in its latest Article IV report urged flexibility as the current account deficit will again come in at 2 percent of GDP on 1 percent economic growth. Oil prices have not firmed and the Kashagan field will not match original size as project ownership and royalties remain fluid. President Nazarbaev hinted at succession and business reforms on winning re-election, but has been a steadfast member of Moscow’s Eurasian Economic Union recently joined by next-door Kyrgyzstan.

Sovereign gross placement has been only $50 billion through mid-year with Poland, Romania and Turkey in the same geographic bucket. External corporate activity has also flagged at $170 billion over the period with almost no Europe supply, according to JP Morgan figures. Among the CIS group, Georgia spreads widened while Belarus and Ukraine risks declined on commercial restructuring deals in the works. On the latter Finance Minister Jaresko began direct negotiations with the Frankin Templeton-led creditor committee in Washington as parliament passed banking, energy and anti-corruption measures to get the next $1. 7 billion IMF installment. However the opposition party Fatherland founded by jailed democracy campaigner Tymoshenko has backed populist proposals including dollar loan repayments at the old pegged currency value to upset the mix. Although reserves are back to $10 billion with Western assistance and a Chinese swap line, the central bank continues to intervene regularly in the spot market and to enforce capital controls within capacity limits. A delegation to a US Chamber of Commerce conference in July was angered by another large EU rescue for Greece in exchange for long-promised fiscal changes, as they pointed out Kiev’s actions in a short time under a civil war program a fraction of Athens’ scale. Representatives added that private bondholders resist any haircut unlike in the Greek case where an unprecedented 75 percent reduction was accepted.

With the latest lifeline Greek banks will continue to struggle even with resumed ECB liquidity injections, and their four subsidiaries in Bulgaria with a 20 percent market share could require near-term infusions as a new central bank governor was approved. The incumbent resigned over handling of the BCB crisis last year which was initially blamed on a text message conspiracy. Serbia has avoided such fallout as post-flooding mining output revives with the benchmark interest rate steady at 6 percent under its IMF arrangement. Turkish officials have concentrated more on the geopolitical ramifications as Mideast and African migrants pass through porous borders and Cyprus reunification talks are due to restart under fresh Northern leadership. Coalition attempts are now formally underway in Istanbul under a 45-day deadline before rescheduled elections as stubborn 8 percent inflation and a 5 percent of GDP current account gap defy joint management.

Iran’s Un-Bankable Post-Pariah Proposition
2015 July 24 by admin

Posted in: MENA
The Tehran Stock Exchange capped a month-long rally on heavy trading volume as the Vienna nuclear deal left the benchmark index essentially flat for the year, with major sanctions relaxation delayed until early 2016. The UN could then lift banking prohibitions including connection to the SWIFT global payments network, and Chinese and Indian institutions are positioned to be among the first to resume correspondent and local relationships and led delegations calling on business and government representatives in recent months. However their enthusiasm has been muted, as credit and capital markets despite nominal access remain subject to pervasive official control, and banks’ balance sheet hole may already exceed the USD 100 billion frozen in Iran’s international accounts.

President Rouhani convened a conference early this year to debate approaches for the huge bad loan ratio estimated at 20-25 percent of the total if normal accounting standards applied. Oversight and resolution gaps have been regularly cited in IMF reports, and the central bank lacks independence as it is just one voice on the Monetary and Credit Council setting policy. Economic growth was 2 percent in the latest quarter with inflation more than halved to 15 percent from 2014’s 40 percent. With relative currency stability, the difference between the formal and parallel exchange rates narrowed to average 30,000 rial/dollar, and unification is still a near-term goal. “Profit rates” for borrowers, to be followed by all 30 state and private institutions in the no-interest Islamic system, were recently reduced 2 percent to 20 percent, and reserve requirements fell to 13. 5 percent. The government-run giants include Melli, Industry and Mine, Agriculture, Sepah and specialized Housing and other units, while private competitors like Saderat and Pasargad often have official ties as part of wider family business conglomerates. Non-performing assets are concentrated in real estate, where a large buyer subsidy program began under the Ahmedijad administration, while manufacturing is operating at only 60 percent capacity. According to the central bank, most commercial lending is for immediate cash flow rather than longer-term investment.

A list of 600 individual and corporate defaulters has been compiled as an important step in addressing problems and reported in the media including the new English-language Financial Tribune. However they are politically-protected names and workout procedures are undeveloped. Banks have also been ordered to divest non-core activities like property speculation which supported the bottom line amid credit woes. Meanwhile they are locked in to previous high-yield deposits at 30-percent plus rates which prevailed under runaway inflation. A task force is exploring setup of a single disposal agency for overdue debts and recapitalization needs, which together may amount to one-quarter the system’s USD 500 billion size, as earnings for banks listed on the stock market declined 7 percent for the latest period.

The Tehran exchange has been touted by frontier enthusiasts as a longstanding financial sector channel, in contrast with absence in post-embargo Burma and Cuba. Since the 1990s it has been member of the Istanbul-based Federation of Euro-Asian Exchanges, a technical body which works to harmonize infrastructure and regulation and also includes archenemy Israel. Modern brokerage and electronic capacity support trading and settlement, and price-earnings ratios are in low single digits for the hundreds of companies offered at over USD 100 billion in combined capitalization. The biggest weightings are in telecoms and petrochemicals, and IPOs and small stake privatizations have been staples for retail punters. Foreign investors can in principle acquire majority ownership with permission, and Gulf buyers in particular were active before sanctions.

True availability is limited as the free-float is only around USD 30 billion with shareholding dominated by government institutions like pension funds, the Revolutionary Guard, municipalities, and religious foundations. Along with average citizens, they received no-payment transfers in the past under Iranian-style privatization. Despite their preponderance and failure to exercise traditional corporate governance, international fund joint ventures such as between Tehran’s Turquoise Securities and the UK’s Charlemagne Capital have been launched with promises of quick value cultivation. However banking and equity markets remain choked by decades of underbrush that will not be cleared even if anti-nuclear intentions are in the rapprochement’s preliminary operational phase.

Originally published on Asia Times www. atimes. com

Power Africa’s Potent Circuit Breakers
2015 July 24 by admin

Posted in: Africa
President Obama received his Nigerian counterpart Buhari in Washington and will visit Kenya, another initial country target for the 2-year old Power Africa program, as the $7 billion public-private sector funding goal is blocked by conventional and alternative energy project delays, suspension of US Export-Import Bank lending and poor Sub-Sahara financial market performance. The African Development Bank has just launched a specialized infrastructure facility facing similar setbacks, and the UN’s third Financing for Development Conference in Ethiopia offered no aid or investment breakthroughs for comprehensive continental electricity access. At the same juncture last year frontier sovereign bond issuance was a record but the 2015 pipeline has been sparse, with Zambia soon to retest appetite at steeper cost.

Nigerian shares were off 15 percent on the MSCI as the central bank imposed import restrictions with the currency’s parallel rate heading toward 250/dollar versus the official 200. Luxury items were banned along with rice and other food with $30 billion in reserves at the six months coverage level. Local and external debt was $65 billion at end-March as borrowing continued for the 2. 5 percent of GDP budget deficit, on estimated 4 percent economic growth with stunted oil exports and power supplies. President Buhari approved a $5 billion bailout for state governments unable to meet salary and bond payments, to be taken from natural gas revenues apart from the depleted excess crude account. The new administration was quiet about fiscal and monetary policy direction during a US Chamber of Commerce conference but will get World Bank technical assistance on planning and strategy with a medium term inflation-targeting goal. High yields have kept bank foreign bonds attractive but local Treasuries are shunned as GBI-EM exclusion may be imminent with the reinforced exchange controls. From a security standpoint portfolio managers are also increasingly on edge with a spate of Boko Haram guerilla attacks and bombings after swearing allegiance to IS which is already active in the Sahel sub-region. Military commanders were reshuffled but a fresh anti-terror and economic development approach in the frontline north has yet to be unveiled.

Kenya is down the same amount on the MSCI with heavyweight Safaricom vying for position in mobile banking against stiff competition, and Tullow Oil coming up against local environmental opposition in the north as the offshore Jubilee field raised first half output.
As President Obama jetted there for a global entrepreneur summit, an international travel warning remained in effect due to rampant crime and the threat of Al-Shabab atrocities as the Westgate Mall re-opened 2 years after mass killings. Despite a $700 million IMF backstop the balance of payments is strained by the chronic current account gap and heavy bank and corporate dollar demand which have sparked a 15 percent shilling depreciation. The new central bank chief hiked interest rated 150 basis points in July and may directly intervene against “disorderly” currency moves as he tries to limit inflation to the 7. 5 percent upper range. Ghana is another laggard with regular “light-offs” under its $1 billion IMF program, with just 4 percent GDP growth projected into elections next year. Zambia’s mining company electricity has been squeezed further after a sovereign ratings downgrade on the near double-digit fiscal deficit as $2 billion in planned Eurobonds may entail at least a 2 percent yield bump.

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The Andeans’ Papal Visit Penance
2015 July 14 by admin

Posted in: Latin America/Caribbean
As the first modern pope from Latin America returned to the continent landing first in Ecuador, Andean stock markets down almost 10 percent in the combined MSCI category in the first half continued to swoon in step with religious fervor. Ecuador’s $750 million additional bond tap in May traded near double-digit yields as oil prices remain below the $80/barrel budget assumption, and President Correa struggles with subsidy cuts and Chinese loan and project negotiations to cover gaps. He has imposed new trade taxes and offered an amnesty for past obligations, but is wary of denting his popularity ahead of another likely 2017 run. Chile stocks have turned negative since President Bachelet retook the post as the official GDP growth forecast slipped to 2. 5 percent on 4 percent inflation. Her approval has dipped to 30 percent after a series of bruising electoral, education and corporate tax reforms against the backdrop of falling copper exports with slack Chinese demand. Family members were implicated in a government loan scandal, and a cabinet reshuffle just named IMF veteran Valdes as Finance Minister in a bid to repair business ties in advance of proposed labor law and constitutional changes. For their part copper producers have complained of opposition from environmental activists at home, with London-listed Antofagasta halting operations at the Caimanes mine after protesters blocked a nearby dam. In external accounts the peso has stabilized and the current account deficit will be minimal, but capital outflows remain worrisome as the continent’s original investment-grade sovereign rating comes under pressure.

Colombia’s almost 20 percent MSCI drop with record currency volatility has been mainly due to the whopping 6 percent of GDP current account deficit and the fiscal shortfall at half that ratio with oil price correction. The state oil company’s Cartegena refinery has not been working and domestic consumption will support less than 3 percent growth this year. Auto sales followed construction into a dive but the central bank has kept the policy rate at 4. 5 percent. President Santos insists that the budget rule on “structural” balance will be observed over the medium term, but foreign investors with light local debt positions await bolder adjustments. The multi-billion dollar public-private infrastructure program has been slow to succeed and negotiations with the FARC guerillas remain stalemated after resumed rural attacks against the military. Security is also in question along the Venezuela border with widespread smuggling and human trafficking, and observers have warned of a mass exodus with economic collapse or a possible military takeover in Caracas.

Peru’s 5 percent equity loss joined a slight EMBI setback as congressional censure claimed another prime minister with President Humala in the waning months of his term before April 2016 elections. He dispatched troops to quell mining violence as $25 billion in ventures remain stalled in community disputes. GDP growth should recover to 4 percent with stimulus tipping the budget clearly into deficit, although the prime sovereign rating is intact with “policy credibility” according to Fitch. International reserves are equal to one-third of output but the central bank has intervened regularly to stem sol depreciation in often shadowy maneuvers, critics charge.

China’s Chain Reaction Share Chastening
2015 July 14 by admin

Posted in: Asia
Asian emerging stock markets, already weakening at mid-year with their own difficulties, shed another one percent in the immediate wake of China’s carnage as foreign investors rethought their 2015 favored region. No country was spared, including post- Modi darling India, traditional safe haven Korea and anti-corruption favorite the Philippines. Malaysia corrected as the Prime Minister was linked to a suspicious bank account, and Vietnam paused as the Communist Party chief visited Washington to advance the final phase of TPP free trade negotiations. They sold off in part to cover Chinese losses, but second half sentiment was due to harden on similar growth and debt patterns, political gridlock and economic management complexity.

Korea was down 2 percent on the MSCI index at end-June as the MERS scare and six consecutive months of export decline slashed expected GDP expansion to 3 percent. The government has reeled from perceived mishandling of the health emergency and the former prime minister’s resignation for illegal funds receipt. The central bank has been under intervention pressure to mirror Japan’s yen depreciation, and cut interest rates to a record 1. 75 percent in March, but is wary of adding to the household debt burden hanging over from the original Asian financial crisis. Fiscal stimulus, which was ineffective when President Park first took power, will again be introduced but domestic borrowing is more expensive as foreign holders have trimmed positions with the lower won and stricter trading rules.

Share price-earnings ratios at 11 times were attractive at a discount to the emerging market average, especially since new laws were adopted to encourage better corporate governance and higher dividend payments by the family-controlled chaebol. However, profits have disappointed across a range of industries from technology to construction and shipbuilding. Samsung has come under investor pressure to divest units, and the well-known US activist fund Elliott led a fight to prevent a controversial conglomerate acquisition as minority shareholder rights are still spurned.

Indian shares were flat before China’s crash as foreign portfolio inflows slowed dramatically from USD 40 billion the last fiscal year. Official revised statistics put growth at 7. 5 percent, but the true reading may be 6 percent. The central bank reduced the benchmark rate slightly as a poor monsoon could reignite double-digit inflation. Agricultural land ownership polices have not changed, and foreign insurers have also encountered regulatory roadblocks despite recent sector opening. State bank non-performing loan ratios are 15 percent, but the government will not relinquish control although it pledges to shake up management. Infrastructure projects cannot proceed until an estimated USD 100 billion in corporate debt is restructured, and investment quotas limit foreign institutional participation in workouts. Frustration about the mixed Modi record has deepened with the endless quest for IPO approval by the stock exchange itself, which is “under r-examination” according to the Finance Ministry.

Malaysia’s further weakness was no surprise as the ringgit tumbled to 3. 8/dollar on reports that USD 700 million from an indebted sovereign wealth fund under investigation went through Prime Minister Najib’s re-election campaign accounts. He denied graft allegations and accused political rivals of fabrication. The ruling party continued to back him since it no longer faces an opposition threat after the coalition splintered. Fitch Ratings held off on a sovereign downgrade, but warned of worsening capital outflows and government and consumer debt loads.

Portfolio investors have also exited the Philippines as exports sputter and President Aquino looks to seek another term with dwindling popularity following botched typhoon cleanups He has also confronted China over disputed sea zones, and a rebel peace deal was sidetracked. Vietnam has struggled this year in the MSCI Frontier index despite 5 percent GDP growth as credit creation remains excessive at 15 percent annually. Foreign investor access was recently raised to 100 percent in select industries but the currency was again devalued. Regardless of China’s inimical share climate, economic and banking sector adversity in the rest of the region will likely erase value on their own terms as the dual drags linger.

Originally published on Asia Times. com, atimes. com



Egypt’s Antagonistic Anniversary Antics
2015 July 8 by admin

Posted in: MENA
Egyptian stocks slid 5 percent on the MSCI index through the first half, despite a successful $1. 5 billion external bond issue after a 5-year absence, as former president Morsi was sentenced to death on the anniversary of his removal and Muslim Brotherhood attackers retaliated against security forces. Parliamentary elections have yet to be scheduled as parties battled over proposed rules, and the capital gains tax was postponed this year but may resurface in the next budget. The fiscal deficit will miss the 10 percent of GDP target with reduced Gulf ally assistance and inflation is again in double digits on subsidy slashes and imminent VAT introduction. The central bank has nudged the currency lower to 7. 75/dollar but has not eliminated the parallel market as the current account hole worsened to 3 percent of GDP despite 50 percent annual tourism pickup. The capital account surplus was 2 percent as $40 billion in FDI from the Sharm-El-Sheikh conference trickles in, with remittances plugging the residual imbalance. Among Western firms Coke and BP expanded commitments, and the Chinese signed a separate $10 billion medium term project deal during a bilateral trade summit. International reserves are still less than three months imports, and Fitch Ratings recently warned that 4 percent economic growth cannot tackle poverty and unemployment as governance indicators continue to slip, as it maintained a “B” positive outlook reading.

Saudi Arabia was the main positive MENA market, up 9 percent on limited direct foreign investor access, as the IMF’s Article IV consultation added to ambivalence about growth and succession prospects. Sluggish oil prices will cap GDP improvement at 2-3 percent as monetary authority holdings continue to be run down to cover spending, at a $15 billion/month rate in the first quarter. The new King announced bonuses for the army and police as military outlays spike for the Yemen air bombing campaign against rebels. A Cabinet reshuffle has put young royal family members in key economic positions as the old guard continues to rule out rapprochement with Iran in the last stages of global negotiation on a nuclear for sanctions moratorium.

The UAE would benefit most from resumed commerce and finance but it was flat on the MSCI index, as bank listings in particular reported single-digit credit expansion with dwindling deposits. Property activity has also tapered as the ambitious airline has come under international scrutiny for alleged backdoor government subsidies. In Dubai the original troubled debtor DW completed another swap which underscored the problem’s tenacity as asset sales run behind schedule. Qatar as the other core universe component was down 10 percent on the World Cup bribery scandal which may imperil 2022 hosting within a massive $150 billion infrastructure program. Before the revelations the Finance Ministry tightened spending controls and projects such as the Sharq bridge crossing have been delayed. Unrelated cultural and museum plans have been shelved altogether, and the state energy monopoly has shed thousands of workers. Oman joined the fundraising queue with a debut domestic sukuk as Invesco’s annual sovereign wealth fund survey pointed to regional retrenchment with Qatar’s pool now undergoing staff and strategic shakeups.

Greece’s Infant Infection Inference
2015 July 8 by admin

Posted in: Europe
Greece’s post-referendum EU rescue and euro adhesion doubts washed over neighbors contending with their own debt and financial sector fractures as securities markets braced for further fallout. Bulgaria, with the largest Greek bank one-quarter external share, got another ECB backstop after the collapse of CCB last year, as foreign bondholders there continue to press claims after the central bank head resigned. That calamity cost $2. 5 billion in depositor payouts and exports to Greece are also over 5 percent of the total and could dent the 2. 5 percent of GDP current account surplus. The system loan-to-deposit ratio has come down to 90 percent as domestic banks turn more cautious and place excess liquidity abroad. A March EUR 3 billion Eurobond went for repayment of a commercial bridge loan for CCB’s shutdown, as net FDI inflows help rebuild reserves to EUR 18 billion or seven months imports. After early elections the new government has implemented fiscal restraint to keep the deficit below 3 percent of GDP, with revenue measures including carbon emission allowance sale. Consumption and fixed-investment have weakened in response as economic growth registers below 2 percent on no inflation. Along with the ECB facility EU cohesion funds in the pipeline have been unblocked on stronger anti-corruption moves, but the MSCI index was stuck at a 25 percent loss through mid-year.

Cyprus shares shed around 10 percent through the period as ratings agency Moody’s predicted another round of asset quality slippage from Athens’ maneuvering, with NPLs still at half of portfolios. A compromise was reached on the foreclosure law and the Limassol port was opened to commercial operation, as the IMF and EU released another bailout installment in the EUR 10 billion program on estimated 1 percent GDP growth. The EBRD unveiled its own privatization assistance push as the new president in the Turkey-controlled north resumed reunification talks. The budget gap continues to exceed the 1. 5 percent of GDP target mainly due to soft real estate prices in 6. 5 percent annual decline. Officials under attack from the opposition party coalition for alleged mismanagement and malfeasance are considering set up of a bad asset disposal agency as they take credit for removing remaining capital controls. They contrast their approach with Greece’s imposition of a more severe EUR 60 withdrawal limit, and reiterate that the depositor haircut applied only to big accounts.

Hungary is trying to preserve double-digit gains as interest rates were again eased, despite skittishness over reduced foreign bondholder positions and retail broker closures implicated in frauds. Franklin Templeton was reported to shrink ownership 20 percent after a longtime overweight as it absorbs likely write-offs from Ukraine’s restructuring. Quaestor, the largest brokerage is accused of illegal bond sale and banks unconnected to the episode will have to contribute to a compensation fund for 30,000 clients. The levy revived anger against the Orban administration after its imposition of special taxes and takeover of foreign-controlled units. It tried to mollify executives by allowing eventual tax offsets for the insurance pool upon Quaestor’s liquidation, which could take a decade beyond patience expectation.

Ukraine’s Clipped Haircut Hurdles
2015 June 30 by admin

Posted in: Europe
Ukraine bonds and stocks showed double-digit losses, as the original end-June deadline passed for a deal with the Templeton-led creditor committee for $15 billion in relief linked to the broader IMF program praised as largely on track. Monthly coupons were paid both on the Eurobond and Russia’s package the Fund places in the official debt category to avoid possible cross-default clause activation The next servicing is in July and Kiev has passed a moratorium law that would trigger CDS upon imposition. Finance Minister Jaresko has pressed for a 40 percent haircut to reach the end-decade 70 percent debt/GDP target, but the four main commercial bondholders prefer maturity extension, equity swaps and economic growth warrants. The contrasting positions are reinforced by the absence of common sustainability data and assumptions as updated work from the latest staff mission awaits release. The exchange rate scenario against the dollar may be further downgraded toward 35-40 heightening fragility, but private funds retort that steep interest and principal reductions will pre-empt medium term market access. They also argue that Russia should not get de facto senior status as the IMF considers its policy for lending into arrears with the current impasse. In September a big $625 million installment is due and negotiations could last until that period with summer vacation and renewed Eastern fighting interruptions. The eventual value recovery could approach prevailing prices around 50 cents/dollar but most sell-side houses view such an outcome as optimistic and remain underweight.

Their caution may be strengthened by the conclusions of two papers on the country’s political and economic futures recently commissioned by the Bertelsmann Foundation. The former concentrates on the US and EU sanctions strategy with a call for balancing “assertiveness and engagement. ” It criticizes the Minsk II ceasefire agreement as favoring Moscow and embedding the Donbass region as another CIS separatist enclave. Business and banking boycotts have not altered the ground situation or President Putin’s behavior with his popularity firm at 80 percent. Reserve and ruble recovery have traced oil prices and the temporary pain according to the Kremlin story could be attributed to the West’s harsh measures amid commodity swings. Central Europe has begun to break ranks with its high bilateral commercial and energy dependence and Italy and France have lamented lost transactions and cooperation on other policy issues like immigration and Islamic extremism. The author warns against Iran-style comprehensive freezes such as ejection from the SWIFT payments system as advocated by US lawmakers, which could “blow back and damage Western economies. ”

Longtime Russia-Ukraine specialist Aslund offers a dismal economic review as he traces the post-2008 descent into crony and state capitalism, and Moscow’s shift from WTO toward developing the Eurasia Union. Financial sanctions have gone beyond the letter after a series of multi-billion dollar global bank penalties as compliance officers prevent all dealings. Capital outflows have continued at $30 billion in Q1, and actual reserves outside earmarked sovereign wealth funds may be just $150 billion. With consumption and investment falls GDP could shrink 10 percent this year, while inflation will stay at 15 percent despite currency rebound. Foreign investor sentiment is “miserable” regardless of sanctions, and unless an integration path can be restored cross-border ambitions will be clipped indefinitely, he concludes.

Argentina’s Rechristened Populist Pomp
2015 June 30 by admin

Posted in: Latin America/Caribbean
Argentina’s pre-election bond and stock rally paused as the candidate slates began to line up, with the ruling Peronists still ahead in early opinion with presidential allies filling the ranks. Their standard-bearer Governor Scioli, picked a current cabinet minister as running mate despite hints from his economic advisers that post-October debt and spending policies will change. The second place opposition representative Macri with around 25 percent approval also completed his ticket and their platform calls for a clear break from populist approaches, but his personal reputation has been dented by a history of sexist remarks. The third main aspirant Massa left the Fernandez administration in a previous dispute over farm taxes and his supporters would overwhelmingly back Scioli in a runoff. The President’s current favorable number has rebounded to 50 percent as the recession has eased with a 1. 5 percent May contraction, and real inflation runs at 25 percent with relative exchange rate stability. The fiscal deficit will probably finish at 3 percent of GDP after an election binge and a good soy harvest with lower oil imports should maintain a $5 billion trade surplus. Foreign reserves are back up to almost $35 billon after a Chinese currency swap line and local-dollar bond issue under scrutiny from litigating holdout creditors for evading a New York judgment.

Other funds and individuals recently joined the original action and these “me-too” claimants lifting the total demanded to over $10 billion. Under the court ruling assets may be seized under a discovery process aimed at state banks and companies considered sovereign “alter egos,” but the government has stymied the effort. Buenos Aires province and oil monopoly YPG have issued external dollar bonds amid the battling, as the latter turns to developing the Vaca Muerta shale deposits with Chevron in a $1 billion venture. The sovereign debt saga added a new twist with the revelation that Cuba still owes $11 billion in unpaid obligations that Argentine lawmakers refused to write off as the US moves otherwise to normalize economic relations after the decades-long embargo.

Venezuela’s stock market, which was dropped from benchmark investable indexes in the 2000s, experienced a 70 percent surge in May into bank and real estate listings in particular as a remaining outlet for savings preservation as the black market peso rate hit 400/dollar. Ratings agencies put default risk close to par with Ukraine as reported reserves dipped to $16 billion in June, despite Chinese loan and Petrocaribe buyback infusions. The actual cash portion may only be $1 billion as deals were struck with investment banks to monetize gold and SDRs were converted from the country’s IMF account. Another concessional oil facility operation with Jamaica for $3 billion in face value debt is in course, and dialogue with Washington has quietly recommenced toward a possible bilateral commercial thaw. The travel currency allowance was slashed three-quarters to $700 per person, and official office hours were changed to cope with chronic power outages. The minimum wage was hiked before elections set for December, but will severely lag 150 percent projected hyperinflation accompanying President Maduro’s rhetorical hyperbole.

Ghana’s Overflowing Spending Spigots
2015 June 25 by admin

Posted in: Africa
Ghanaian bonds and stocks reeled from massive flooding which resulted in deaths from a facility explosion in Accra along with property and infrastructure damage, as the cleanup may imperil the 7. 5 percent of GDP fiscal deficit aim under the IMF program and the World Bank stepped in with a guarantee to go through with a $1 billion Eurobond plan. New revenue has mainly come from central bank profits, and spending restraint from additional arrears accumulation. Public sector salaries and fuel subsidies are due to be cut in the coming months, and the government has returned to commercial bank T-bill issuance for financing although foreign investors continue to stay away. Inflation, stoked by a 30 percent currency drop worst in the world after Venezuela, is above 15 percent and the benchmark interest rate was hoisted in May to 22 percent. The heavy rains will also hurt the cocoa harvest as a key export and collateral for an annual syndicated loan. Cote d’Ivoire as the number one producer is in the final stages of its own Fund arrangement as it heads into December elections, where President Outtara is favored to win another term despite feeble health. It again hosted the African Development Bank annual meeting amid sparse big convention venues, which should support another year of 7-plus percent GDP growth from the post-conflict base. Former President Gbago has yet to go on trial for alleged war crimes, and the International Court was further undermined with the recent escape of accused Sudanese leader Bashir from an arrest warrant during the World Economic Forum in South Africa. The headline notoriety came on the heels of anti-immigrant attacks and rising inflation due to electricity tariff increases to boost state power company viability. The central bank is expected to raise rates marginally as the 6 percent upper band could be breached and rand softness continues. At the event the ANC’s populist wing advocated stricter currency controls especially on the public pension fund which has extended allocation abroad.

Nearby in Zambia, which also hopes to repeat a Eurobond, the Finance Minister estimated the budget deficit at 10 percent of GDP, double the initial projection, on lower copper earnings and power shortages. Growth should come in around 5 percent as the uneven mining regime and 30 percent corporate tax deter FDI. Mining is 30 percent off the 2011 peak and the current account gap will rise moderately in advance of new elections. Kenya is also on a spending binge which has hit the currency and capital markets, with new railroad and security outlays bringing the deficit/output ratio almost to double digits. The new central bank governor lifted rates 150 basis points with inflation above the 5 percent medium-term target, and also quintupled bank capital requirements to spur consolidation. Tourism earnings are down 25 percent, but a $700 million IMF precautionary facility reinforces close to $7 billion in reserves. The stock exchange was relieved after a 5 percent capital gains tax was cancelled but replaced with a general transaction levy which will spread the pain. In the north incursions by al-Shabab include the slaughter of school children, and President Kenyatta shook up the interior ministry as he vowed to staunch the terrorist flow.

China’s Delayed Graduation Gradients
2015 June 25 by admin

Posted in: Asia
Chinese stocks endured $7 billion in foreign fund outflows with the index still up 25 percent as MSCI decided not to add “A” listings until access and ownership issues were clarified. The China weighting including Hong Kong is already one-quarter the index, and total inclusion could raise the portion to 45 percent. A first incremental phase was foreshadowed which could precede a formal review as the company and Beijing officials established a working group to resolve outstanding constraints. Local retail investors, with an estimated $400 billion in margin loans and two-thirds of the free float, were unperturbed after opening a record 4. 5 million accounts the last week of May. The securities regulator has conducted spot brokerage checks and may limit credit to four times capital, but asserts the practice is “healthy” as the Shenzhen direct HK link will soon join Shanghai. The former has over 1500 companies with a small-cap emphasis and P-E ratios above 100 times. The stock market mania has displaced other non-bank pursuits, as they collectively dropped to 25 percent of RMB 1. 2 trillion in total social financing in May. According to S&P 70 trust companies had $2. 5 trillion in assets in Q1, with CITIC and CCB among the largest. Zhongrong International recently floated a $225 million dollar bond to prepare for losses, as the professional association cited hundreds of products at risk from property and general economic corrections.

The central bank shaved the GDP growth forecast to 7 percent as consumer inflation hovered at 1. 5 percent while the producer version shows another year of deflation. Monthly exports are down but imports shrink even more with the current account surplus projected at 3 percent of output. PMI has stayed over 50, but fixed investment barely up double digits is at a decade low. Foreign car makers lamented the “death” of the luxury market as oil and iron ore sales continue to flag. New airport and rail projects were announced, and following relaxation of previous restrictions home prices rose in 30 cities, although construction and inventory indicators remain decisively negative. Moody’s changed the sector outlook to stable as developers became the biggest Asia high-yield class and a core component of the benchmark CEMBI. Local governments reported a 40 percent drop in Q1 land sales as their bond issuance quota was doubled to RMB 2 trillion to reduce immediate interest burdens. Banks originally shunned the rollovers at low yield but were persuaded to participate with special collateral and loan facilities. With these maneuvers Jilin Province, the riskiest bet according to a Bloomberg analysis, could offer 3-year bonds at the same rate as the central government.

On the currency front officials continued their internationalization campaign with encouragement to foreign central banks to hold Yuan reserves as they anticipate the IMF’s favorable nod for SDR incorporation. Capital inflows were $20 billion net positive through May despite outbound direct investment up 50 percent as the Silk Belt and Road initiatives spread their tracks across the region. The Asian International Infrastructure Bank convened its first meeting as the institution and the CIC sovereign wealth fund recruit executives abroad. Hong Kong’s talent pool faces stiffer competition, with cross-border relations further soured by legislative council rejection of Beijing’s preferred leadership promotion process.

Central America’s Leaden Leadership Protests
2015 June 18 by admin

Posted in: Latin America/Caribbean
Guatemala and Honduras bonds were hit by massive anti-corruption marches calling for their respective Presidents’ resignations on sweetheart government contract deals. Guatemala’s vice president directly implicated departed on her own accord amid doubts she could face criminal prosecution under previous sovereign immunity. Honduras’ wave of child emigrants fleeing poverty and violence to the US had recently ebbed as Washington increased bilateral economic assistance and the IMF inked a structural adjustment program. Both countries under new presidents had vowed business-friendly deficit-cutting policies now sidetracked by scandals, as security forces accused of their own abuses try to fight well-armed drug and kidnapping gangs. Guatemalan GDP growth could be marked down from 4 percent as the protests continue, as inflation inches up to 3 percent on higher oil and food prices. The fiscal balance went negative in Q1 and could slip to a 2 percent gap this election year, to be covered by domestic borrowing at half the 25 percent of GDP public debt, lowest in the region. The trade deficit has narrowed but will still top 10 percent of output and can be bridged by an estimated $6 billion in remittances from over 1 million nationals in the US.

In the Dominican Republic President Medina with an 80 percent approval rating must also decide about re-election next year through constitutional change, and the ruling party with a congressional majority already introduced enabling legislation. The political opposition is weak but the island is wary of long-serving leaders with its strongman history, and this year’s 6 percent growth pace, fastest in Latin America, may not last. Almost all sectors of the economy, especially tourism as arrivals rose 5 percent in Q1, have been humming after a major mining clash was handled in 2014. Inflation has barely registered with falling fuel and food costs and will end 2015 below the 4 percent target. Panama has been a flat EMBI performer after a $1. 25 billion global bond in March brought public debt to 40percent of GDP, despite still vigorous 5 percent growth as the Canal expansion enters its final phase. Free zone activity has sputtered with Venezuela’s collapse and new Colombian tariffs on Chinese garment trans-shipments, but tourism earnings have compensated which account for almost one-fifth of output and employment.

In Costa Rica and El Salvador in contrast the economies are growing around 1 percent on debt/GDP at 60 percent, with fiscal correction stymied by political infighting. The former placed a Q1 external bond following the latter’s last September, and both have experienced deflation which may persist in El Salvador’s case with the strong dollar. Costa Rican officials have travelled to Washington to present modest budget reforms, while Salvadoran counterparts are under fire for private property interference that may jeopardize Millennium Challenge Account aid.