No More Learning

Emerging market analysts cited it as a possible voluntary restructuring model for Greece before the situation there spun out of control. Benchmark yields fell to single digits and the Jamaican dollar firmed against its US counterpart The ruling Labor Party’s popularity benefited from successful emergency handling that carried through until mid-2011, when a combination of backlashes against austerity and security crackdowns to fight drug gangs resulted in the prime minister’s resignation.

His replacement kept the Finance Minister and pledged to honor outstanding obligations, but the IMF arrangement veered off track as the debt load increased. The ruling party was soundly-defeated in late December elections which concentrated on stubborn crime and unemployment. The estimated 6. 5 percent and 1. 5 percent of GDP fiscal deficit and primary surplus will miss targets. Progress lags on government payroll cuts, tax and pension changes, and state enterprise privatization in strategic industries like aluminum. Tourism, which accounts for one-fifth of the economy, was up but growth was just 1 percent on headline inflation at 7. 5 percent. International reserves are stuck around $2 billion despite higher remittances with oil import costs and lackluster foreign direct inflows. In view of these difficulties S&P lowered its outlook to negative on the B-minus rating at the end of October.

Trinidad and Tobago in comparison is an energy exporter and investment-grade sovereign but poor non-hydrocarbon performance shrank 2011 output. Stocks rebounded from the bankruptcy of the CL Financial Group with reported contingent liabilities at 10 percent of GDP. Official rescue along with infrastructure and social spending eliminated previous fiscal surpluses, and regulators had to scramble to resolve claims for the complex conglomerate with its diversified operations and cross-border network. An insurance subsidiary in Barbados is still under pressure, which kept its stock market flat. The IMF, in an annual review, warned of danger there under the exchange rate peg with public debt over 100 percent of GDP and languishing visitor and offshore center earnings.

The bigger islands seek to skirt the fate of their tiny neighbors in the Eastern Caribbean Currency Union, with a shared monetary unit and central bank predating the Eurozone. Its members, including Dominica and Grenada several years ago and St. Kitts and Nevis last July, defaulted and subsequently negotiated fresh arrangements with private, bilateral and multilateral creditors. In the St. Kitts case commercial holders were only spared write-downs on local Treasury bills. These examples may show the EU that a single currency zone can survive such trauma, and Jamaica which has government debt-GDP only matched by Greece and Lebanon in non-advanced economies could soon follow this routine regional restructuring path ending an exceptional equity market streak.

Financial Stability Reports’ Grading Jitters
2012 January 17 by admin

Posted in: Global Banking
An IMF working paper finds “major drawbacks” in the central bank financial stability reports now issued semiannually and yearly in 80 countries, especially in their forward-looking assessments of systemic risk as that topic grips both industrial and developing world economies contending with new crises. Before the 2008 shock only fifty authorities compiled publications, and recent big entrants include India and the US Federal Reserve. In Mexico and elsewhere it is produced by an intergovernmental council, although the central bank maintains a key role. The average document length is 100 pages and coverage has evolved beyond the banking sector to embrace a broad range of non-bank, household, infrastructure and regulatory issues and micro and macro data. Stress-testing at the industry and institution levels typically features, and increasingly results must be presented to national parliaments for examination and hearings. The Swedish Riksbank is hailed as a model with a 15-year record, and heavy emphasis on current capital-liquidity gaps and future prospects with the content submitted for outside evaluation. Its present head is chair of the Basel Committee, which just reiterated application of stricter global standards by mid-decade. In terms of clarity, consistency and scope a sampling of authors profiled – with Brazil, Iceland, Korea, Latvia and South Africa from emerging markets – has more mixed content. They state objectives and offer financial market details but often lack reference to currency and securities interrelationships and cross-border banking and portfolio investment linkages. Ties between the biggest universal groups and diversified conglomerates, and sovereign exposures in light of the Eurozone crisis have not been explored. Risk mapping over time is absent, projections are unavailable or cursory, and stress-tests are only revealed in the aggregate in many cases. However Korean and South African indicators look at foreign exchange impact, and Latvia’s overall financial stress index incorporates numerous components.

Macro-prudential and monetary policy discussion is extensive, and Brazil and others regularly address international supervisory trends, even if foreign-language versions are not posted on websites. Iceland, which has endured a spectacular banking crash predating the Lehman Brothers debacle, has been notable in identifying missing balance sheet statistics particularly regarding non-resident and individual borrowers. Release delays have occurred as with Latvia’s 2010 summary issued in July 2011, and data is frequently circulated separately from the report body. Regressions using a range of ratings agency soundness and credit and stock market volatility measures show scant correlation between the analyses and subsequent stability. The Fund staff cites a loose “association” between higher-quality FSRs and healthier banking environments, and calls for more research into the specific channels for better information and discipline which tag tail risk.

Kazakhstan’s Flickering Succession Embers
2012 January 17 by admin

Posted in: Europe
Kazakh shares slumped 30 percent in 2011 by the MSCI Index as President Nazarbaev marked the 20th independence anniversary with an emergency security declaration against rioters in the western oil town of Zhanaozen ahead of scheduled parliamentary elections slated to bring in formal opposition. Police opened fire on crowds that torched buildings amid a festering labor dispute in the region which had been watched by international energy groups pressured for a new deal on the Karachaganak project. KazMunaiGas, the London-listed state unit, asked European partners to dilute their shares as its head was dismissed by the President. His son-in-law and manager of the sovereign wealth fund Kulibayev was also purged from the ruling circle and the former Interior Minister was dispatched to the restive region in advance of a CIS meeting in Moscow where the longstanding power clique is likewise poised for a shakeup. The succession issue has become more urgent in Astana following reports that the President was recently treated abroad for cancer. The instability comes in the aftermath of a sovereign ratings upgrade to BBB+ on foreign exchange reserve replenishment to $70 billion, and hydrocarbon-led 6 percent GDP growth reflecting healthy FDI and fiscal positions. The currency has stayed at 150 to the dollar, but banking system vulnerability lingers with private credit flat and NPLs averaging just under one-third of portfolios. Eurobond access has eroded after major financial institution defaults, although the government plans to test the external sukuk market. The IMF in its latest Article IV probe called for stricter loan accounting and provisions in addition to “further governance and transparency” gains to mirror broader trends in Central Asia and the Caucuses, where Georgia for example has been hailed in “Doing Business” rankings.

Ukraine with a 45 percent loss was at the bottom of the European and overall frontier pack with the $15 billion IMF program still off course on continued gas pricing, pension and other differences. The current account deficit doubled to 4. 5 percent of GDP last year and international reserves at $35 billion are below the 2008 crisis amount. Public and private external debt repayments are estimated at around $60 billion in 2012 and foreign banks have already announced cutbacks as the government will be unable to tap Russian and Eurobond financing even under favorable conditions to cover its $10 billion sum due without multilateral endorsement. Privatization has stalled since the controversial $1 billion sale of the phone monopoly to an Austrian group aligned with local oligarchs, and steel and agricultural exports may suffer from harvest and Asian demand constraints. The US and EU have added political reservations to the mix with outrage against the jailing of opposition party chief Tymoshenko for alleged crimes previously as prime minister within the CIS’s spotty succession saga.

The US Treasury’s Awkward Asia Manipulations
2012 January 11 by admin

Posted in: Asia
The US Treasury Department’s International Affairs office issued another delayed biannual congressional report on global currency practice which again cited China’s “persistent and substantial undervaluation” short of outright manipulation as defined by the 25-year old original statutory terms. It repeated resistance to market direction for RMB appreciation, while noting that since mid-year, like other emerging economy units, upward pressure has dissipated. In the final 2011 quarter reserve accumulation slowed as capital inflows to the developing world were buffeted by lower GDP growth figures and safe haven diversion from the European debt crisis. However the IMF’s multi-model rendering of appropriate exchange rate levels for rebalancing continues to see Brazilian real overvaluation and Chinese and Korean currency undercutting against the dollar, while the Mexican peso reflects medium-term fundamentals. The survey adds that recent risk aversion has pushed the advanced-nation Swiss franc and Japanese yen to records, prompting unilateral interventions from their central banks to preserve formal and informal ceilings. A euro/franc temporary cap was set and Tokyo spent $115 billion of its world number two $1. 25 trillion reserve pile to keep the yen above 75/dollar in consecutive operations even as foreign exchange conditions were “orderly” so that other monetary authorities refrained from participation. The update was postponed pending the outcome of the G-20 November conclave in France, where Beijing reaffirmed a commitment to greater flexibility to aid domestic consumption and avoid “competitive devaluation. ” Although misalignment has since become less pronounced, progress has been limited for the US and major trading partners serving to impede both lasting international economic recovery and financial system evolution, the Treasury finds. On Japan the regime is floating and the yen accounts for 20 percent of daily forex turnover, but recent official reaction to strength was misplaced with increased structural “dynamism” a better route to influencing commercial position, it suggests.

In Korea a market-determined rate is accompanied by “smoothing” moves against volatility which have generated two-sided support over 2011. The won is 10 percent undervalued on a trade-weighted basis, according to the IMF, and authorities have introduced numerous “macro-prudential” curbs for short-term debt and foreign currency exposure, including new proposed bond profit and derivatives taxes. Although the banking sector relies on external wholesale funding, intervention should be confined to exceptional cases and overall management is too rigid, the review indicates. Taiwan’s policies received lighter treatment than the mainland’s with no challenge to the central bank line of interference only for “seasonal or irregular factors and disorderly shifts. ” With $400 billion in reserves, the local dollar is down 5 percent against the greenback on the eve of presidential elections which may provoke their own chaotic course.



Central Europe’s Vacated Velvet Touch
2012 January 11 by admin

Posted in: Europe
As Velvet Revolution Czech icon and former President Havel was mourned, the economic growth forecast changed to flat this year after earlier optimism on the prolonged crisis in the Eurozone which takes 75 percent of exports. Gradual fiscal tightening, including a 5 percent VAT increase, has likewise cramped domestic demand as the government strives to shrink the deficit to the 3 percent EU standard on public debt at 40 percent of GDP. The currency which has long been an overweight trade has slipped against the euro, and depreciation is expected to continue with the central bank affirming a hands-off stance. It has kept rates on hold and in its latest statement hinted at easing when the exchange rate stabilizes. FDI is again predicted to cover half the current account gap and the banking system with a 75 percent loan-deposit ratio is seen as less prone to foreign squeamishness, but parties in the fragile coalition are calling for tougher protections and contingency measures. They distinguish potential steps from the harder line in next-door Hungary, where the stock market decline has been double Prague’s. In the latest boxing round with the Orban administration, the IMF suspended negotiations over a new facility as the ECB also lambasted monetary authority changes that erode independence and a fiscal rule that embedded a flat tax. The Prime Minister, after first dismissing their objections, proclaimed that international reserves could be used for 2012 repayments without outside help. According to a “burden-sharing” arrangement announced with banks on fixed forint- Swiss franc-denominated mortgage conversion, one-third of the funding for the scheme has drawn already on the pool with spare capacity, officials assert. The bank hits absorbed to date prompted further downgrades from ratings agencies that also challenge this year’s marginal growth, 4 percent inflation, and 2. 5 percent of GDP budget deficit parameters. A plan to merge financial services regulators has further pitted the regime against the central bank, which recently lifted the benchmark rate 50 basis points to strengthen the forint.

Direct intervention as in Poland has been shunned to date, but political pressure could sway such practice even in the absence of a formal statute establishing the power balance. The re-elected Civic Platform leadership got a mixed sovereign rating mark as it was kept at the same level as Italy with the caveat that local and regional groupings without sufficient revenue would likely endure “negative actions. ” It can tap a sizeable IMF pre-qualified contingency line, as Romania, whose currency has also slipped on the continent’s riptide, moved to accelerate installments under a smaller precautionary version to harden its armor.

Cyprus’ Undefended Demarcation Lines
2012 January 6 by admin

Posted in: Europe
Following another ratings downgrade as Fitch’s outlook went negative, Cypriot officials scrambled to scotch talk of joining the EU rescue queue, as the stock exchange yearly fall veered toward triple-digits. Central bank head Orphanides denied bailout resort while admitting “credibility and international market access loss” from fiscal deterioration, while Finance Minister Kazamias hailed “our own problem-solving” with passage of an austerity package of state pay freezes, additional pension contributions, and VAT and dividend tax hikes. Thousands of government workers took strike action in protest as their union boss decried their absence from the table as a traditional social partner. The authorities believe they can halve the budget deficit to meet the Maastricht 3 percent of GDP ratio while restoring growth from the prevailing recession next year. As for bank exposure to Greece that was highlighted as a “weak link” in the IMF’s annual report and comes to EUR 30 billion or 150 percent of GDP, their response has been to prepare a bond for shares support mechanism to cover the current 50 percent sovereign debt haircut under negotiation and future recapitalization needs of the big three affected institutions. However the offshore sector which is quadruple the size is also suffering as Russian depositors in particular look to safer havens amid Eurozone and domestic election turmoil. With the island’s external bond yields in double digits a $2 billion loan was taken from state-owned Sberbank to get through last year, but the same amount is due in repayment in 2012. The EBA has estimated a EUR 3. 5 billion hole on bank balance sheets over the period, but analysts warn of deeper trouble under a more severe Greek write-down scenario that could carry over into extensive corporate lines. They note that the main Athens-based groups have already sought emergency assistance under the IMF-EU program and may be nationalized outright, while creditors on the steering committee are facing new demands for 75 percent-range reductions and have hired legal and financial advisers to fight back. The sole hedge fund representative on the main restructuring team resigned in criticism of the desired terms as the timetable for a deal has been pushed into January-February just before fresh elections are scheduled to replace the caretaker administration.

As the 30th anniversary of Cyprus’ partition approaches, relations with Turkey remain stagnant as economic and financial sector imbalances there preoccupy policymakers already in power for a decade and confronting investor charges of complacency and delay. Bond inflows to offset the 10 percent of GDP current account deficit have turned cautious as the central bank intervenes to back the lira. Banks are bracing for a spike in nonperforming consumer loans, and the stock and derivatives exchanges are to be merged and privatized with the goal of forging a regional hub in historically-difficult terrain.

2011’s Perfunctory Performance Pedestals
2012 January 6 by admin

Posted in: General Emerging Markets
In Asia the Philippines exchange joined Indonesia in a late-year barely positive result among core MSCI stock markets down 20 percent. The spurt was attributed to regional reallocation from dominant destinations China and India, and its less correlated standing in the universe as well as steady remittance-aided GDP growth and revenue-driven fiscal strides. However these relative attractions began to wane in recent weeks with record flooding in the southern islands spurring government emergency spending on typhoon cleanup, as rebels long active in the area accused it of negligence. In the Gulf new overseas worker rules are designed to limit future professional labor influx, especially in the service and knowledge industries. While President Aquino faces no upcoming elections and retains solid approval ratings, a decision to prosecute his predecessor for alleged malfeasance in office has drawn fire in particular because former chief executive Arroyo is in ill health and has been denied medical treatment abroad. This pattern is familiar as she had charged her forerunner with embezzlement and he was subsequently found guilty and sentenced to prison. By contrast Indonesia’s President Yudhoyono has maintained political supremacy despite administration corruption incidents as the mainstream opposition remains weak and a landmark infrastructure law was finally passed, which will clarify land use and private participation for a wide range of electricity and transport projects. The package is pivotal to unlocking hundreds of billions of dollars in foreign commercial financing and investment needed by mid-decade, according to official estimates, that do not yet include launch of a much-debated Jakarta subway network. FDI at $20 billion is only half the level of the late 1990s pre-crash, while non-resident holding of local bonds was noticeably trimmed in the last 2011 quarter as central bank ownership jumped.

In fixed-income the EMBI+ chalked up a 9 percent return on the reverse trend with ten major components showing double-digit gains. The main loser was Argentina, which refused to budge as President Fernandez glided to another term, although her revelation of thyroid cancer has now focused attention on potential policy departures under Vice President and former Economy Minister Boudou, who handled reopened bond swap and Paris Club normalization negotiations. Another laggard was Ukraine, where the $15 billion IMF program has been postponed pending gas tariff and other changes, with external assistance needed in 2012 to cover debt repayment and the current account gap. Further Russian state bank lending may not be available with ongoing energy price disputes and street protests against Putin’s rule. Democracy monitors have decried similar tactics by Kiev with the jailing of opposition party head Tymoshenko for purported crimes, as the stock market too ended the year at the bottom of the frontier ranks in a form of exile.

Africa’s Creaky Fragile Poll Apparatus
2012 January 4 by admin

Posted in: Africa
Thinly-traded secondary loans for Liberia and the Democratic Republic of Congo were buffeted by disputed presidential elections extending incumbents’ tenure amid allegations of widespread fraud and manipulation. Liberia’s contest returned Nobel prize winner and former Citibank and UN executive Johnson Sirleaf with only 40 percent turnout as the main opposition candidate, claiming unfairness, boycotted the second round, while son of the original post-Mobutu DRC leader Kabila won over a veteran political activist almost double his age. Both countries recently reached the HIPC completion point and received billions of dollars in external debt relief with Congolese negotiations continuing with non-Paris Club and commercial creditors. Its operation has been controversial with anti-poverty groups at one extreme calling for total forgiveness under the doctrine of “odious” obligations, while distressed specialist funds argue that claims can be honored in light of additional loans taken from Chinese state banks in exchange for copper and diamond mining access. The World Bank criticized a $6 billion commodities for infrastructure building and funding deal, and reported no employment growth from small and mid-sized firms the past five years due to corruption. The country is ranked last on the UN’s Human Development Index, with most of the population in abject poverty and less than 10 percent with electricity as criminal gangs and warlords continue to ravage outlying province, especially along the Rwanda border where residual rebel groups have been accused of egregious human rights violations. The minerals sector has come under scrutiny with provisions of the Dodd-Frank law in the US to certify conflict-free sourcing. Construction and services around the large foreign aid and peace-keeping presence are additional economic mainstays supporting 5-percent plus growth on double-digit inflation. Under official lending programs, the central bank is barred from budget deficit coverage, and last year a big bank was closed under agreed financial sector cleanup.

Liberia’s biggest bilateral donor is the US which gave $250 million in 2010, and the Indian steel giant Arcelor Mittal has been the biggest investor in a $15 billion project portfolio with iron ore exports launched in September. The IMF forecasts 8 percent-range GDP growth this year and next after getting over 95 percent in debt reduction amounting to almost $5 billion. Hydropower installation and Monrovia port improvement were identified as investment priorities needed to better living standards as well as support the flagship Firestone rubber plantation. A debt management agency has been established to oversee fresh infrastructure borrowing as the government budget has increased to $500 million with a tight lid on spending. President Johnson-Sirleaf reiterated upon victory an agenda to be weaned from aid over the coming decade and achieve middle-income status by 2030 despite her fragile state mandate.

Peru’s Salomon Wisdom Wisps
2012 January 4 by admin

Posted in: Latin America/Caribbean
Unlike the sharp securities selloff on Peruvian President Humala’s defeat of market favorite Fujimori six months ago, reaction was muted to the resignation of Prime Minister Salomon Lerner, a well-known business executive, as he tried to negotiate a settlement over anti-Conga mining protests and was overruled with declaration of a state of emergency and his replacement by a former interior minister and military officer in the Humala cloth. The entire cabinet was subsequently reshuffled in the fastest shakeup since democracy was re-established, as previous members of the centrist Peru Possible party exited altogether in condemnation of the government’s “militarization. ” Over half the posts were reassigned, but Finance Minister Castilla stayed and defended the suspension of government transfers to the Cajamarca region where the disputed project is based on the grounds they could be diverted to demonstration support. New cabinet chief Valdes said open dialogue would be upheld with affected communities, with technocrats in charge to deal with environmental and compensation issues to preserve the multi-year $5 billion investment. A separate big mining venture, Yanacocha, with Newmont of the US and stock exchange heavyweight Buenaventura as partners, has been suspended on fresh land preservation and town social spending demands, saddling the index with a 20 percent loss after 2010’s record performance. However GDP growth should still come in at 6 percent, and the currency has been steady against recent global dollar resort with occasional central bank intervention. As the political maneuvering made headlines, the city of Lima continued on a road show to New York and other financial centers to promote a sub-sovereign bond issue with a high credit rating meeting with keen subscriber interest. In keeping with a “green agenda,” part of the proceeds will go toward a large park development in the capital.

In the Andean region populist leaders have backtracked on building and commodity initiatives encountering local criticism. In Bolivia, President Morales acquiesced to Indian blockage of a road scheme and Ecuador continues to press cases against oil multinationals in courts at home and abroad for alleged toxic dumping and other violations. GDP growth in the latter should be double the 2010 outcome at 7 percent on a double-digit public investment pickup, but the current account deficit persists at 2 percent despite this year’s petroleum windfall. The fiscal gap also remains in the 5 percent of GDP range and increasingly relies on Chinese official lending for coverage in the absence of external market access post-default. The sole honored bond comes due in 2015 as neighbors try to break a proven pattern of self-isolation.

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The Gulf’s Drill-Down Disappointments
2011 December 29 by admin

Posted in: MENA
As Gulf OPEC members gathered for their Vienna plenary with oil prices tipping below $100/barrel, serial setbacks convulsed the region still trying to grapple with Arab Spring aftershocks. Two years after skirting with default, Dubai was the subject of speculation that 2012’s estimated $10 billion debt load would be restructured under harsher terms than the DW work-out, potentially entailing bondholder haircuts. Government-linked companies remaining in trouble since Abu Dhabi’s $20 billion support injection, including various units of royal family-controlled Dubai Holding, have yet to reach definitive deals, and the recently-completed exchange of Nakheel obligations saw wholesale dumping of new instruments as creditors feared another write-down request. The government admitted upcoming payments would be “challenging,” but claimed it was preparing backup local bank credit lines and structured sukuks among other refinancing options. To instill confidence an internationally-modeled bankruptcy law is due to go into effect soon, as doubts surface that the neighboring emirate would again offer help as it cuts back and delays its own project pipeline, most notably the Saadiyat island cultural center and Guggenheim museum branch. Sheikh al-Nayan has doubled public sector salaries and unveiled a slew of housing and infrastructure programs that may call heavily on annual $100 billion petroleum revenue and sovereign wealth fund holdings. Earlier this year it issued a $3 billion Islamic sovereign bond to lay a foundation for near-term additional corporate borrowing. The UAE was again rejected for an MSCI bump to the core stock market rung on reservations about the delivery-versus-payment system but low volume was an implicit concern. Qatar too failed to make the grade on foreign investor restrictions despite natural gas-led GDP growth above 15 percent, with syndicated loan access and pricing suffering with the withdrawal of traditionally active European banks. Economic expansion is forecast to halve in 2012 with further resort to large-scale external debt issuance.

Saudi Arabia experienced an unaccustomed cabinet switch as the central bank governor moved to Economy Minister, while his successor was recruited from an investment banking and stock exchange background, which may presage additional opening. Both budget and current account surpluses are due to narrow, and a $150 billion stimulus package must be managed at home as well as $20 billion in aid to Bahrain and Oman under the provisions of a recent GCC summit. 5 percent inflation could beat GDP growth next year as the delicate transition to a new monarch unfolds. The regime continues to face terrorist incidents which may mount with the civil war on the border with Yemen. It also seeks to avoid the popular resentment spectacle of neighboring Kuwait, where the prime minister was dismissed after protesters crashed the parliament decrying corruption. Food costs there have risen 10 percent as the Gulf’s falling stock markets continue to cause indigestion.

The BIS’s Diabolical Deleveraging Plot
2011 December 29 by admin

Posted in: Europe, General Emerging Markets
The Bank for International Settlements’ end-year quarterly survey for the first time presented a comprehensive matrix of European bank emerging market exposure incorporating local and cross-border elements, with a breakout of short-term and debt securities holdings suggesting the Asia-Pacific region is at greatest pullout risk. As of June, two-thirds of claims there were under one year, and local units accounted for less than half the total. In comparison, Europe and Latin America had higher foreign bank participation as a share of credit outstanding at near 50 percent and 20 percent, respectively, with fixed-income assets at one-fifth and one-tenth of the corresponding portfolios. For the Middle East-Africa, the non-resident lending portion outpaced Asia’s at 75 percent, but vulnerability indicators were otherwise tame. At the upper tier of combined potential flight scores are a number of core recipients including the BRICs, Hungary and Korea. Such borrowers had started to struggle in Q3 on external debt-raising which showed a “marked decline” from China, Russia and elsewhere, and currency and equity derivatives activity likewise retreated in Brazil and South Korea. The EMTA trading figures for the same period chart a 10 percent fall from the year before to $1. 75 trillion, concentrated 75 percent in local instruments. Mexican paper topped the list, and corporates were 40 percent of Eurobond volume. Hong Kong, South Africa and Turkey also saw active government debt engagement reaching an aggregate $350 billion. The African portion should be boosted with the launch of JP Morgan’s NEXGEM Index capturing these higher-yielding and less liquid frontier markets, which also transfer existing minor EMBI components from South Asia and Central America/Caribbean.

Ghana and Nigeria sport both domestic and foreign issues which are slated for the roster. The former’s ‘B’ credit rating was recently upheld with a stable outlook despite reservations about fiscal discipline heading into presidential elections. The incumbent is seeking another term and faces the same opponent he barely beat in 2008. Oil-aided GDP growth will drop below 10 percent in 2012 as inflation stays in single-digits. The budget deficit goal of 5 percent of GDP will be missed under the expiring IMF program, which has also breached the commercial borrowing cap with a $3 billion Chinese arrangement. Currency weakness has sparked central bank intervention, but officials are averse to defining a dollar corridor as with Nigeria’s naira where it has been loosened to the 155 range. 7. 5 percent growth has been accompanied by 10 percent inflation despite hefty central bank rate hikes. The fiscal gap should remain at 3 percent of output as more money is put into infrastructure, but excludes the bad assets of the AMCON resolution authority which amount to over 10 percent of GDP and are often trapped in transaction indecision.

South Africa’s Durban Grievance Airing
2011 December 27 by admin

Posted in: Africa
South Africa’s post-Kyoto climate change gathering in Durban reflected a mood of recrimination both between and within developed and developing country blocs, mirroring splits in the host among competing political and economic interest groups that have saddled the stock exchange with a double digit loss. According to the UN, it ranks among the dozen worst emitters of greenhouse gases with heavy coal use, with 2010’s Integrated Resources Plan charting a path of one-quarter renewable energy operation over the next two decades. Wind, solar and hydropower, where neighboring facilities in the region could be tapped are core new sources envisioned alongside existing nuclear and oil-conversion technologies. An overriding imperative is to reduce funding and transmission burdens for state-owned monopoly Eskom, whose quasi-sovereign borrowing appetite has contributed to ratings caution and motivated the government to turn instead to multilateral lenders for softer terms. As with the Durban final compromise which aims to produce an undefined legally-binding environmental accord short of outright treaty by 2015, power company reform will be phased in as a gradual process limiting private ownership and participation. Sour local feelings were further fostered by paltry 1. 5 percent Q3 GDP growth with mining output down, as 6 percent inflation breached the central bank’s target band due largely to rand depreciation as the worst-performing emerging market currency during the European crisis period. The budget deficit will exceed 5 percent of GDP, and has prompted Pretoria to tighten controls on provinces with runaway spending. With the fiscal squeeze, officials invited underwriting bids for an inaugural external Islamic bond as they seek to meet next year’s $30 billion public sector financing envelope. Gulf, Malaysian and Nigerian investors would be drawn to the structure, advocates believe, but the treasury will still tap domestic banks and institutional investors for the bulk of the sum as well as non-residents continuing net fixed-income inflows. The allocation serves to offset the 3 percent of GDP current account gap as yields outpace advanced economy instruments, despite the central bank holding benchmark rates and regular talk of productive asset nationalization and capital controls to spur business and job creation and exchange rate confidence.

The Zuma Administration has resisted calls in this direction by ANC proponents, with Planning Minister Manual describing mine appropriation as a “bad idea,” but such steps remain “options” and will be debated again at the party’s policy conference in six months. In adjacent Zimbabwe where stocks are up marginally on the MSCI frontier index with commodity capacity off historic lows, “indigenization” involving 51 percent ownership transfer has proceeded partially under threat of license revocation as President Mugabe campaigns on the slogan going into 2012 elections notwithstanding its dubious luster.



North Asia’s Powder Keg Successions
2011 December 27 by admin

Posted in: Asia
South Korean stocks slumped in the immediate aftermath of Northern dictator Kim’s demise as his son and military advisers likely assume the reins and nuclear arsenal responsibility amid reports of another famine in rural areas. The US before his death had resumed food aid talks, and China and Russia had embarked on energy and construction joint ventures. Seoul has been preparing for its own political transition with legislative and presidential elections next year, with export-oriented GDP growth headed for another 3. 5 percent indifferent performance. Domestic demand has been stunted by high household debt at over 150 percent of disposable income, according to the central bank, which has been reluctant to tinker with benchmark rates. The won in turn has been whipsawed by global trade and financial conditions as short-term external debt through foreign bank branches has again crept up, and officials have reactivated intervention and emergency swap support. The latter had been reinforced by a bilateral Fed line during the 2008 crisis, and this time a facility with Beijing was doubled to $60 billion to bolster $300 billion in reserves. A depreciation feed-through to already 4 percent inflation could combine with an unemployment uptick to hand defeat to the unpopular ruling party in the 2012 races with relations with its Communist neighbor set to feature now also as a prevailing theme.

Taiwan, where the exchange is off 20 percent, represents another explosive dual diplomatic and economic policy crossroads, as mid-January polls approach with incumbent President Ma holding on to a shrinking lead. His Kuomintang party has championed closer mainland ties including a breakthrough free-trade pact, but the opposition DPP has signaled continued conciliation while attacking the KMT for favoring the business elite. The challenger has however spurned the “1992 consensus” which endorses “one China” without defining details.
Backers claim such a course is prudent since the island cannot be sure of Beijing’s intentions as the senior Politburo is reshuffled there. The impending shift has caused investor hesitance in Hong Kong as well, where exchange promoters are scrambling to reassess in light of sudden renimbi weakness and product launch delay. It has fallen behind New York in this year’s IPO sweepstakes as state-owned companies scale back cross-border listings, with the regulator anticipating future reliance on private firm offerings. Underlying costs and technology lag Singapore’s diverse platform seeking to attract pan-Asian interest. Japan too has foreshadowed a new era with a scheme to merge the Tokyo and Osaka stock markets, as recently-tapped prime minister Noda considers social security and consumption tax changes to stabilize the 200 percent of GDP public debt ratio with short-selling JGB strategies thus far backfiring.

India’s Reluctant Retail Establishment
2011 December 19 by admin

Posted in: Asia
Indian retail shares lifted briefly in an attempt to propel Asia’s worst performing exchange, but then reversed after the government delayed granting foreign chains won greater ownership rights provided they invest at least $100 million and source locally through small firms. The change could bring in $20 billion in FDI to help offset the current account deficit as the portfolio component again shows outflows, according to proponents from the ruling Congress Party coalition expected soon to name Rahul Gandhi as leader next year after his mother’s illness. The opposition BJP has attacked the proposal as destructive for family shops and farmers already suffering from subsidy cuts and inflation which finally settled at single-digits following relentless central bank rate increases. GDP growth has petered to 7 percent and the rupee is off 13 percent against the dollar this year prompting “anti-volatility” intervention. The central fiscal deficit is above target at 5 percent of GDP and the foreign institutional bond allocation quota has just been hiked further to $60 billion to expand government paper allocation. Banks and corporates with the crowding out have resorted to borrowing abroad and face heavy repayments next year. Companies owe $15 billion next March by rating agency tallies, and Moody’s recently downgraded the financial sector on an anticipated spike in non-performing loans and margin squeezes that may result from the end of minimum-deposit rates. Listed firm earnings are at their lowest since the 2008 crash aftermath and family conglomerates have sold off on costly acquisitions and diversification strategies and refusal to cede insider control. In a notable departure responding to the criticism an unrelated executive will become the next head of the country’s biggest business Tata.

To the south on the subcontinent Sri Lankan stocks have also been in the doldrums after a banner 2010 as “peace dividend” hype fades despite 8 percent economic growth on reactivated tourism, agricultural and industrial capacity. The former Defense Minister has been sentenced for coup-plotting and a new nationalization law reflects the regime’s authoritarian instincts. The currency was officially depreciated with a likely pass-through on 5 percent inflation, as private sector credit continues to rise at a double-digit clip. Multilateral lenders have urged the elimination of tax holidays to help close the chronic budget gap, but authorities have hesitated. Asian frontier market observers offer as a contrast Mongolia, where a 5 percent deficit cap has been enshrined beginning in 2012 with massive metal revenue infusions. Inflation there is also running at 15 percent and NPLs remain high after a 2009 IMF rescue at near one-tenth of portfolios. An inaugural sovereign bond is on tap before parliamentary elections in six months often accompanied by controversy and violence that have tarnished appeal.

Asia Bonds’ Backstop Back-Away
2011 December 19 by admin

Posted in: Asia
The Asian Development Bank reported a slower 5 percent local currency bond increase in Q3 to $5. 5 trillion outstanding as total issuance for the year is off 20 percent to $825 billion, with the corporate segment particularly strained at $140 billion. Instruments from Indonesia and the Philippines led gainers with an average over 10 percent, while Taiwan lagged with just a 2 percent improvement. The weakness has raised flags about funding fallback with the Eurozone crisis spillover into both trade and cross-border lending. The BIS puts Euro-bank claims in Emerging Asia at over $400 billion, and the 2008 repeat specter of syndicated and trade credit halt may loom again, which was especially felt in Korea with its high external reliance when the central bank had to inject emergency reserve and Fed swap lines. US, UK, Chinese and Japanese banks have since stepped into the breach, but domestic bond markets which dominate the EM universe will be the main alternative source. Non-government needs may be pressed in the region with the narrow private activity typically prevailing outside Korea and Malaysia, according to regular ADB surveys. The large foreign ownership shares topped by Indonesia’s at one-third that have swelled since the Lehman era could remove additional ballast should European allocation be further repatriated. International reserves could once more be mobilized in a contingency, supplemented by bilateral swap arrangements as a possible offset, but guidelines for triggering and tapping such facilities remain unclear.

In Korea and Malaysia 2012 elections could confuse and delay decision-making. The Seoul mayor’s contest recently resulted in an outsider upset, and President Lee had difficulty getting approval for the just-signed US free trade accord with lawmakers preparing for the upcoming cycle. Interest rates have been on hold as household debt burdens weigh on voter choices, while the won has whipsawed with darkening export prospects and regular intervention. Malaysia’s commodity endowments in crude and palm oil have been more resilient, but the fiscal deficit continues to run at 5 percent of GDP as the ruling UNMO party looks to call polls in the coming months. The Prime Minister’s Economic Transformation Program, which diluted pro-Malay policies while hiking social outlays, will be a campaign issue as domestic debt approaches the 55 percent of GDP self-imposed cap. In Vietnam the undeveloped bond market provides scant comfort with inflation at 20 percent and the dong continuing to depreciate in both informal and programmed formal terms. The sovereign rating has been downgraded and leading corporate bond sponsor Vinashin defaulted, and foreign exchange reserves and true bank capital adequacy are low as communist officials extended another 5-year term seek to avoid a shipwreck.

Fund Trackers’ Strange Footprint Sightings
2011 December 19 by admin

Posted in: Fund Flows
Going into December dedicated equity fund outflows of $35 billion were double the local currency-oriented bond inflow total which has also waned in recent weeks, according to EPFR. The BRICs including South Africa accounted for half the exit, with ETF selling accounting for one-quarter of India’s loss. In Latin America, Chile and Mexico declines were also due mainly to ETFs, while positive stock allocation has only gone to a handful of countries including Colombia, Poland and the Philippines. On the MSCI Colombia’s and Mexico’s market drops have been limited to single digits, while the sole core gain was Indonesia’s despite currency correction. Frontier funds continue to be shunned with African destinations in particular off an average 25 percent. Kenya has been battered the most as it turned to the IMF for emergency assistance on 20 percent-level inflation and interest rates, while world-beating oil growth story Ghana has sputtered heading into the traditional pre-election high government spending period. In the BRIC category, Brazil and China have each sustained $5. 5 billion in redemptions. Holders are skeptical of Chinese central bank claims that lenders and developers can absorb a 20-30 percent fall in housing prices and that local government non-performing credit so far is less than 3 percent. Japanese investment trusts have joined international peers in spurning Brazilian assets despite the removal of capital controls as GDP growth of 3 percent will likely come in at half of above target inflation. Rumors have swirled there that small banks reliant on wholesale lines and domestic bond issuance are in trouble as the Rousseff cabinet continues to shed ministers on corruption charges. Russia had experienced a $1. 5 billion exit before parliamentary elections brought ruling party reversal and street protests as yearly capital flight by official estimates could be $80 billion. Public sector wages were raised 6 percent in October, but the largesse did not sway voters who cut the Putin’s United Russia grouping to a simple from a two-thirds majority.

Europe after its solid 2011 start has become a pariah region with even its remaining AAA-rated advanced economy members put on ratings watch. Croatia and Slovenia have been among better frontier performers as elections put opposition candidates campaigning for overdue fiscal and competitive adjustment in office. Zagreb is on track for EU partnership and the new Slovenian leader headed a business with ties throughout the former Yugoslavia. Lithuania, on the other hand, joined the bottom ranks after a bank collapse which resulted as well in closure of its Latvian arm as Baltic solidarity proved double-edged.

Afghanistan’s Numbing Scandal Scars
2011 December 19 by admin

Posted in: Asia
As donors convened in Bonn for their annual Afghanistan pledging session on the tenth anniversary of the Taliban’s overthrow, Pakistan stayed away in protest over security clashes as Asian, Western and Gulf delegates considered aid documents critical of banking sector cleanup and future economic viability with desired mid-decade foreign troop exit. The meeting came as the IMF finally agreed to a new 3-year $125 million facility after the collapse of number one Kabul Bank with $4 billion in assets due to widespread insider dealing and fraud met with belated and lackluster regulatory response. Despite provoking a run on other institutions including Azizi which too is now under investigation, initial reaction was muted as presidential family members and allies claimed innocence and relationship protection. After an international audit, senior management was sacked and a receiver appointed for bad asset recovery while deposits were transferred to new entity. To cover the balance sheet damage the Finance Ministry was authorized by parliament to issue a promissory note to the central bank through 2020. About one-tenth of the $1 billion missing has since been seized. Since 2002 some 15 domestic and foreign banks have opened but the financial system remains dominated by hundreds of informal hawala money-transfer networks, with over 300 licensed. Collateral and contract enforcement practices are rudimentary and oversight has been “almost non-existent,” according to IMF findings. Poor governance and corruption, and low per-capita income at just over $500 are a “heavy toll” explaining grant reliance for 40 percent of GDP, although opium and related illegal activity could account for a comparable portion.

Growth will be over 5 percent this fiscal year, with inflation running at double that pace on high imported fuel and food costs. The budget deficit outside transfers is 4 percent of GDP and the currency has been stable against the dollar. Tax revenue with mining and VAT proceeds could reach 15 percent of output in the medium term, the Fund projects, and government securities could be launched over the period to support local borrowing but fiscal sustainability is a “distant goal. ” International reserves are sufficient for several months of imports but depend overwhelmingly on billions in foreign donor and defense inflows. The country is at the bottom of world competitiveness and transparency rankings, and is still at high risk of debt distress. On monetary policy no-interest Islamic sukuks will be introduced for interbank cash and liquidity purposes, and the New Kabul Bank will be privatized next year or will be closed or merged without a suitable buyer. Eventually Basel capital adequacy and FATF anti-terror and money laundering norms could be incorporated, but that agenda is ambitious as the decade-long overseas presence is phased out, the review suggests.

Capital Controls’ Captive Audience Qualms
2011 December 12 by admin

Posted in: General Emerging Markets
Post-election Argentina reacting to massive capital flight slapped new regulations on household and corporate dollar purchases as next-door Brazil, which had championed inflow curbs, ordered relaxation of tax and other measures as it too experienced net portfolio investment withdrawal. Buenos Aires ordered that industrial companies repatriate export proceeds and that individuals verify foreign exchange need with tax agency approval, as Commerce Secretary Moreno vowed an informal market crackdown. The central bank must safeguard reserves to repay external debt next year while attempting to maintain a gradual depreciation policy to aid the agricultural trade surplus. Without the interference, the peso would be on track to fall one-third against the greenback by conservative estimates, which also expect GDP growth to descend to 1-2 percent without the same heavy pre-poll fiscal handouts. Energy subsidy rollbacks are already in the works, although President Fernandez insists that the longstanding economic model will continue to stress an anti-poverty agenda. She has remained sympathetic to Venezuelan President Chavez’s economic approach which has reiterated the fixed currency regime and extended a spending spree heading into another election round. Non-oil construction brought 4 percent Q3 GDP growth as consumer staple price controls were also stiffened. Another large sovereign-oil company bond, sending annual issuance to $18 billion, went to market to release hard currency as the centralized SITME platform continued to dribble out normal requests. The opposition may unite behind a youthful popular governor or mayor at a time when the incumbent’s opinion approval is low and his health is in question after a cancer bout.

Asian proponents of access and participation curbs including Indonesia, Korea and Thailand may also modify them under changed forex and debt market circumstances, authorities have hinted. In India the sudden steep rupee plunge prompted a well-established commercial and political lobby to advocate new restrictions, but the government responded instead with additional opening of the retail sector to overseas capital, as it attempted to belatedly honor re-election promises and reinvigorate inward securities and direct investment. In South Africa calls led by ANC activists were rejected as youth wing head Malema was placed on suspension ahead of next year’s key party conference. As with India, portfolio commitments are needed to balance the current account deficit, and local institutions are wary of retaliation as they seek to diversify in BRIC and Sub-Saharan destinations. In Europe Western bans on equity and CDS short-selling have yet to be embraced elsewhere, while Russia has just agreed to 50 percent international bank stakes under WTO provisions as another Putin presidency is slated with privatization and venture capital overtures to accommodating comrades abroad.

The Dutch Caribbean’s Treading Treat
2011 December 12 by admin

Posted in: Latin America/Caribbean
A year after gaining fiscal independence from the Netherlands and launching a joint stock exchange Dutch Caribbean members Curacao and Saint Maarten were urged in the IMF’s latest review to tackle chronic growth, unemployment, aging and current account deficit problems that may stifle bourse ambitions. The former Antilles maintains a currency union and guilder-dollar peg and international reserves cover 5 months of imports as of end-2010. GDP expansion has been flat on tourism and services earnings on 2 percent inflation. Bank capital adequacy and liquidity are good, but non-performing loans approach one-tenth the total. The islands received debt relief under the separation terms and run small budget deficits as overall public obligations average 30 percent of output. The balance of payments gap exceeds 20 percent of GDP on commodity import dependence and credit demand with “substantial adjustment” in order to see medium-run sustainability, the Fund believes. Dollarization may be a future option, but “anemic competitiveness” must first be addressed with greater cost flexibility and the banking system must be prepared for the conversion. A deposit guarantee scheme and binding fiscal rules should be introduced under autonomy, and tax changes should aim at lower labor and profit levies, according to the analysis. The Willemstad-based exchange has listed Latin-domiciled and Canadian Scotiabank funds, and its first IPO was a gold financing company that may also soon issue Nasdaq ADRs. Outstanding government bonds are also traded, and Aruba, which recently had its high sovereign rating reaffirmed on record visitor numbers, could enter the mix.

Formal business development plans envision offshore center diversification to rival neighbors like Barbados and Panama, while proximity to Venezuela affords a steady stream of wealth management accounts. Panama’s financial flows were up 15 percent this year to $2. 5 billion, with a comparable performance predicted in 2012. Barbados has lagged with 1 percent economic growth, while government debt at 100 percent of GDP has brought warnings from multilateral lenders. Among second-tier Caribbean destinations elsewhere the Dutch-speakers may spot further openings. In high-yield Belize, electricity and phone company nationalizations have raised international criticism over property rights, while widening the budget deficit. FDI is off one-third this year, and municipal elections are scheduled early in 2012. In the Dominican Republic the presidential contest for next May is in full swing with both major candidates in a tight race. Future relations with the IMF beyond the current standby are an issue as better remittance and tourism revenue propel 4 percent growth. Continued migration from Haiti as it marks the second anniversary of the epic earthquake with modest cleanup and reconstruction results is another factor as trouble-free visitor slogans are often lost in translation.



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Iran’s Serial Sanctions Stubbornness
2011 December 7 by admin

Posted in: MENA
The Tehran Stock exchange lost ground in October as the threat of new international commercial and financial punishment exacerbated currency and inflation fears, amid a big industrial group scandal involving allies of President Ahmadi-Nejad in the run-up to municipal elections next March. He and religious leader Khamenei have been in a power struggle since his disputed second term victory, and the split has played out in government in-fighting and embassy seizures where each camp jockeys for superiority. An updated International Atomic Energy Agency assessment suggests continued nuclear bomb preparations, and the UN will soon debate the prospect of stiffer sanctions. In the meantime the US publically hinted at including the central bank in its legal boycott, while the UK vowed to retaliate against attacks on diplomatic premises. The monetary authority has already been reeling from 20 percent-plus inflation and fragmentation of the exchange control regime, which has tried to limit formal depreciation against the dollar to 10 percent. The informal market premium is 30 percent, and to relieve pressure banks were given wider scope to sell foreign currency. The price rises have come from subsidy removal as officials were forced to backtrack on original cutbacks after poor and middle-class protests. The Economy Minister survived a no-confidence vote in parliament on these questions and the failure to detect earlier $3 billion in alleged fraudulent letters of credit by a prominent business executive who used them for company and privatization bid funding. State-run Bank Saderat, which has been on the overseas blacklist, issued the paper and financials fell broadly on the bourse as the p/e ratio touched 7. In contrast with the main floor, a successful housing firm IPO took place on the OTC tier as that sector is viewed as a defensive play. Most other industries have been hit by global shunning and Euro-crisis pressures including power where a major listing wrote off $2 billion in debt. Some money has moved into bonds as the benchmark 4-year rate was lifted to 17 percent and progress toward exchange-rate unification could accelerate to reverse sentiment by the end of the fiscal year, according to analysts.

The possibility of an Israeli military strike against suspect facilities has again factored into the calculus following the IAEA report and statements by the Netanyahu administration after resumed skirmishes with Iran’s ally Hamas. With GDP growth slowing and exports forecast to be flat in 2012 the central bank has cut interest rates. With popular outrage and a crackdown on large financial-industrial conglomerates housing prices have started to come down, although a steep fall could batter bank balance sheets whose shares have been spurned on that exchange as well.



Spanish Banks’ Layered Latin Letdown
2011 December 7 by admin

Posted in: Latin America/Caribbean
With West European banks’ Latin America exposure just behind their overwhelming Eastern one which parents are already paring, Spanish giant Santander’s decision to shed its large Chile unit may be a harbinger of regional selloffs elsewhere. It is also a major player in Argentina and Mexico as well as Brazil, where according to the BIS, euro-area bank claims of $285 billion represent almost one-quarter of local credit. Cross-border bond allocation has also been high, with Latin issuers representing one-third of this year’s near $200 billion external total by JP Morgan calculations, with a sizeable high-yield contingent and a handful of defaults and restructurings already underway. Q3 company earnings offered a hint of coming difficulties with currency depreciation losses. Chilean peso volatility had previously worsened on copper price worries, with China taking the bulk of exports in a commodity relationship mirrored by neighbors. It is a top trading partner likewise for Argentina, Brazil, Colombia, Peru and Venezuela, and 15 percent of outward investment went to the hemisphere, double the amount five years ago. Raw materials are essential for feeding the dual property and infrastructure boom, which Beijing official and overcapacity forces are moving to correct. The twin concerns combined to keep the Santiago, Bogota and Lima bourses, which are now tracked on a new joint MSCI index, off double digits through November. Chilean President Pinera a year after mounting a rescue operation for trapped miners has seen his popularity plummet on unmet demands for increased public education spending as the central bank projects lackluster 4 percent 2012 GDP growth. Consumer inflation is close to that figure, and unions are pressing for a 9 percent annual wage increase. However interest rates could still be cut if global conditions darken, even as the $12 billion peso support program may not be renewed.

Colombia, on the other hand, has raised rates slightly and reinstated an intervention band with inflation in its upper target range and credit and real estate looking frothy. Oil and mining FDI will exceed $10 billion this year boosted by Washington’s ratification of a long-pending bilateral free trade pact. Venezuelan commerce could pick up with expected stimulus there ahead of presidential elections, but the FARC rebels remain a threat after several army attacks and appointment of a successor to its veteran leader killed in combat. Peruvian president Humala, after a rocky start, has maintained an approval rating above 50 percent amid community protests over environmental damage and revenue sharing in metals projects. A new royalty formula has been proposed that is more industry-friendly than original versions with the guidance of cabinet technocrats and former business executives, but opponents warn that his populist luster will soon again be revealed.

Egypt’s Fading Square Peg Fit
2011 December 1 by admin

Posted in: MENA
Egyptian shares stayed at the bottom of the core universe heap as Tahrir Square again erupted in mass demonstrations and violence ahead of military-run parliamentary elections, following lapsed local bond auctions and 6 to the dollar pound breach as international reserves of over $20 billion are off 40 percent this year. Democracy activists have urged a poll boycott and insisted that prominent civilians enter the government prior to 2012’s scheduled presidential contest, while the Muslim Brotherhood expected to be a dominant force will compete in the process despite flaws. The cabinet has been reshuffled by the army council in response to criticism, and the Finance Ministry has reopened talks on an IMF loan while the central bank head’s term was extended. The reserve position covers less than 4 months of imports, and under conservative estimates the current account deficit will be at 2 percent of GDP, while the fiscal one is at 10 percent. Suez Canal receipts, which fell 20 percent in 2009, could soften further with a repeat global trade tumble, and European tourism and investment have suffered from dual tensions. Remittances from the Gulf may hold up, but pledges of large aid and T-bill allocation by sovereign wealth arms have barely materialized. Foreigners, who once accounted for one-fifth of the latter market, have cut holdings to a fraction as benchmark yields hover at 13 percent on headline inflation that has dropped to half that figure. Public debt/GDP is already at 75 percent, and while fiscal policy remains loose the monetary authority has just raised interest rates while regularly intervening to keep annual pound depreciation to 5 percent. The Fund previously proposed a $3 billion package with few strings, but with the deterioration since Mubarak’s January departure and the subsequent claims of the Euro-crisis a new offer may not meet the interim administration’s size and stringency desires.

In Tunisia the main Islamic party won handily in the initial political transition phase, and a counterpart was biggest vote-getter in Morocco’s monarchy-sanctioned exercise for a parliament with greater power. The Libya conflict will seal Tunisia’s recession as its rating is maintained on negative outlook and a large Eurobond comes due in 2013. At the opposite end of the troubled state output scale in the region Iraq on restored oil production is up 6 percent, but Baghdad has recently challenged Kurdistan over license awards to multinationals in a perennial politically-sensitive issue. From a security standpoint, the bulk of US troops are slated to leave soon but the stock exchange rally has sputtered on fears Iran incursions could join enduring inter-ethnic enmity as sand in the gears.

Private Equity’s Driven Deal Display
2011 December 1 by admin

Posted in: General Emerging Markets
The Emerging Markets Private Equity Association reported that Q3 fundraising through 120 sponsors had returned to the pre-Lehman level year to date at over $30 billion, a $10 billion jump over all of 2010. China-focused offerings took three-quarters of the total, while Brazilian ones took a record $4. 5 billion. 650 transactions over the period came to $20 billion, and the developing market fraction of the global total is 15 percent. With Europe’s crisis, capital mobilized has dropped under $1 billion there, with only $60 million put into Russia. Sub-Sahara Africa has drawn more at $1. 3 billion, quadruple the MENA region attracting $350 million, down one-third from last year. South Africa in turn has taken in just $100 million, one-quarter 2010’s commitment. Asia accounts for the most deal-making with 75 percent of the aggregate, although its activity is less than 10 percent the worldwide sum. China and India dominate, but PE investment as a share of GDP is 0. 15 percent and 0. 4 percent, respectively. India’s penetration is the highest among major economies, while Mexico’s and Turkey’s rank at the bottom. Turkish companies’ leverage has been a deterrent, with $60 billion in overseas loans due through the middle of 2012, according to the central bank. For the biggest emerging market corporates generally, record international bond payments of $55 billion are owed and recent exchange rate corrections could aggravate the burden.

In Central and Eastern Europe limited partnerships have begun scouting for openings with the likely pullback of Eurozone-based cross-border groups which comprise at least two-thirds of the system in Hungary, Poland, Bulgaria and elsewhere. Originally they had agreed as an extension of EBRD, EU and IMF support to keep their presence and portfolios essentially intact, but parents like Austria’s Erste now clearly intend to repudiate the pledge under earnings and Basel and European supervisor capital-raising goals. The fallout may extend to Spanish giants BBVA and Santander’s operations in Brazil, Chile, Mexico and Argentina. Last year a Brazilian unit IPO had been oversubscribed, but the stock market index and flotation pipeline have since cooled. Euro area bank claims there are almost one-quarter of domestic credit and household debt service levels merit comparisons with the US in the subprime heyday. Number one target China has also come under harsh banking criticism in its first IMF stability assessment as venture firms weigh economic, property, and local government risks. It questioned the oversight and performance of the state-owned commercial behemoths, and cited the system danger of multiple shocks that could include a sudden exchange rate shift which may again be in the startup phase with bilateral and WTO complaints.

Greek Banks’ Nihilistic Network Effects
2011 November 29 by admin

Posted in: Europe
Greek banks, that will suffer most as the largest group of commercial holders under a proposed 50 percent government debt haircut, reported deposit leakage of almost 15 percent this year as household lending was off 18 months consecutively. They have turned to the official guarantee scheme authorized under the original EU-IMF package to access ECB lines as branches in the main Athens protest areas have been abandoned and defaced. The big three groups in nearby Cyprus were again downgraded several notches by rating agencies on sovereign, retail and corporate exposure. Moody’s commented that with 40 percent of their portfolios at risk, state support could soon be needed despite its own chronic deficit with unchecked salary and pension outlays. Modest reform measures introduced after recent post-election leadership changes will leave a 2 percent of GDP gap, which may again have to be met through Russian bilateral loans as an extension of their longstanding offshore interests on the divided island. Before the banking crisis, authorities had to contend with tepid tourism and property sales off 20 percent, and a gas storage tank explosion that cut energy supply with heavy cleanup costs. Reunification talks with the Turkish side are also at a worsening impasse after the discovery of hydrocarbon deposits in disputed waters. Balkan neighbors Bulgaria and Romania have tried at the same time to offer reassurance about Greek-intensive financial institution health. In the former non-performing loans 3 months overdue are already at 15 percent, and the railway was just forced to shed thousands of workers to avoid bankruptcy relying on World Bank support. The Romanian central bank, with the comfort of a new IMF agreement, resorted to monetary easing on anemic GDP growth and urged further privatization efforts to free funds after a review cited “unsatisfactory” progress.

In Hungary, Greece references have resurfaced after that scenario was posed by Orban administration officials right after they took office with public debt at 75 percent of GDP. In 2012 foreign repayments will jump 50 percent to $6. 5 billion as the post-2008 IMF emergency loan comes due, and budget deficit and growth projections have both turned worse. Along with the fixed Swiss franc mortgage conversion program that may draw on reserves and require backing for state-owned top stock exchange listing OTP, municipal foreign-currency debt has also been assumed. The forint has dropped beyond the critical 300/euro level and local bond auctions have been lackluster and occasionally failed with premium demand and non-resident withdrawal from their previous one-third ownership stake. The government has wooed Chinese interest as an alternative, and invited their membership as primary dealers to meager results in a Sisyphean effort.

Cote D’Ivoire’s Default Remedy Dalliance
2011 November 29 by admin

Posted in: Africa
Cote d’Ivoire external bonds rose above 50 as the IMF resumed a $600 million credit facility with one-fifth the amount immediately available, even as the Finance Minister pushed the first repayment date on missed interest coupons since early this year to the middle of 2012. It also offered interim debt service relief as a new accord is negotiated with Paris Club bilateral creditors as part of a longstanding HIPC completion point push. Former President Gbago and his allies face trial although international human rights investigators found violations on both sides during the civil war. A reconciliation commission will convene after parliamentary elections in December as security forces try to reassert command over the north-south geographic and tribal divide. A more comprehensive restructuring on commercial debt principal has not been ruled out as economic indicators point to a 6 percent GDP decline this year on inflation around the same range, and state banks suffer from spiking NPLs. Their asset side, with large government securities concentration, was saved from further calamity when the West African central bank stepped in as a buyer, also supporting prices on the Abidjan-based regional bourse. Cocoa trade with big multinational buyers is again on stream after the brief boycott, and sector reform is a key structural aspect of the Fund accord, with President Ouattara’s advisers leaning toward a public-private mix which could inject efficiencies, while bringing in additional revenue for the chronic budget and current account gap. Anti-child labor activists have also demanded detailed monitoring and reporting of field practices, with US-listed companies facing possible supply chain verifications as with Congo’s minerals, where a conflict-free mandate was inserted in the Dodd-Frank law.

Another Sub-Sahara issuer joined the global sovereign ranks as Namibia came to market for $600 million, with neighboring South African institutions eager bidders. German vestiges there have inspired fiscal and monetary discipline, and the post-independence period saw an early example of peaceful transfer of power. Angola, with its own national liberation movement legacy, is often listed as a next candidate after getting the latest tranche of its $1 billion IMF loan conditioned on greater oil earnings transparency. Nigeria could come soon with a diaspora-targeted instrument championed by the Finance Minister when she was at the World Bank. Fitch boosted the outlook on the BB-minus rating to stable with the smooth election aftermath, and the central bank has hiked benchmark rates by several hundred basis points at a clip to defend the naira at 150-55 to the dollar and limit inflation to single-digits. A sovereign wealth fund with a professional board of directors with an initial $1 billion endowment is to replace the mishandled excess crude account which was often described as crude in its excesses.