No More Learning

Debt financing remains the preferred route with $20 billion raised through mid-February, including a mammoth $7 billion global bond from Petrobras which received quadruple that amount in orders after a chief executive reshuffle putting an ally of President Dilma Rousseff in place. The stock market disappointment as well did not seem to dent enthusiasm for Sao Paulo airport concession privatization although the winning bidding groups featured well-known state pension funds and industrialists. Heavy fixed-income inflows however have resurrected the “currency war” cry as the central bank is again intervening against rapid real appreciation. Macro-prudential measures could be added after a pause and partial reversal, and transaction taxes may be a tempting option to uphold the promised 3 percent of GDP primary fiscal surplus as the government also revisits structural changes in pensions and other areas. It has dunned mining giant Vale for back taxes, and demanded that development lender BNDES increase dividends.

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

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

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

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

Israel’s Stretched Strike Capability
2012 February 27 by admin

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

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

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

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

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



Pakistan’s Supreme Dilemma Dare
2012 February 21 by admin

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

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

The Baltics’ Beguiling Bragging Rights
2012 February 21 by admin

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

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

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

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

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



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

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

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









Romania’s Chafing Chill Wind
2012 February 15 by admin

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

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

Egypt’s Ponderous Pound Pounding
2012 February 15 by admin

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

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

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Africa (106)

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

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

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

Myanmar’s Muddy Modernization Maw
2012 February 9 by admin

Posted in: Asia
A cascade of Western officials and investors, including hedge fund titan George Soros, visited long-shunned Myanmar as a diplomatic thaw was signaled and the IMF released a detailed report on recent economic performance and immediate challenges. Democracy campaigner and Nobel peace prize recipient Aung San Suu Kyi remains free from house arrest and will run in April elections after her party abandoned its previous boycott stance. A mass amnesty for other political detainees has ensued and a cease-fire was signed with a major ethnic rebel group. The new head of the military government has been praised as a “genuine reformer,” and international commercial sanctions are under review in Washington, Brussels and Asian capitals and could be lifted later this year. Representatives from the Korea Stock Exchange, which has offered funding and technical assistance throughout Indochina, have launched consultations with local counterparts as the Fund urged comprehensive banking overhaul including interest rate liberalization, collateral strengthening and rural network extension. Other overriding structural imperatives are state enterprise privatization and currency system unification which can improve fiscal and monetary balance, according to the mission. GDP growth is 5-6 percent on inflation around the same level, as natural resource exports should continue to benefit from the removal of restrictions. FDI has pushed the parallel exchange rate up one-third the past two years with current and capital account curbs still in place. The central bank was given initial autonomy, but has few tools for liquidity management and could consider pilot Treasury bond issuance. The budget deficit is close to 5 percent of GDP and should shrink with natural gas project revenues. Tax simplification is overdue and government-owned companies are a costly drain. The business climate suffers from lack of infrastructure and smaller firms are at a competitive disadvantage with licensing requirements and narrow credit and market access, the Article IV picture concludes.

Asian frontier followers cite the precedent of minerals powerhouse Mongolia, which led all stock exchanges in 2011 with a triple-digit advance, in an attempt to sell the transformation story. GDP growth there was 20 percent in the latest quarter, and soon the biggest coal mine will go public with shares allocated to all citizens as general elections approach. A stabilization fund has been established to smooth the commodity cycle which ended formerly in a 2008 bust and bank failures that ushered in emergency multilateral assistance. As with Myanmar, China is the key resources customer, and complaints have become more heated about corruption and environmental damage surrounding joint ventures. Thousands of Chinese work at the giant units in the Gobi Desert as enthusiasm for prospects aided by operator hype and employment urgency may not suddenly dry.

The Maghreb’s Simmering Pot Straddle
2012 February 6 by admin

Posted in: MENA
In North Africa as Morocco and Tunisia attempt Islamic-party led nonviolent economic comebacks, attention has also focused on Algeria where the powers in control for decades have fought an ingrained insurgency often compared with the current battle in Syria. There the international community has withdrawn energy, tourism and banking ties as an Arab League mission seeks a phased Assad regime transition as in Yemen’s case in order to avoid full-scale bloodshed as erupted in Libya. The exchange rate was officially devalued as the central bank spent billions of dollars in initial defense. Non-essential import curbs have been introduced, and personal currency access restrictions remain in place. Private banks dominated by Lebanese-owned units are now authorized to offer pound transfer, but speculative trading is outlawed. Prominent business executives allied with the government have been subject to asset and travel freezes abroad as the stock exchange lies dormant and GDP may be shrinking at a double-digit pace. Monetary officials claim to be prepared for a “long crisis” and “painful sanctions,” but will not disclose their reserve position despite previous reporting.

Algeria’s holdings in contrast have ballooned to $175 billion or 3 years of import coverage on a 30 percent oil and gas revenue windfall in 2011.
However setbacks in the public investment program dragged GDP growth to 2. 5 percent on 5 percent food-driven inflation. Banking system liquidity also contributed, on “very expansionary” fiscal policy, according to the IMF’s annual review. Post Arab-Spring spending was up 50 percent on civil service wage awards, small enterprise assistance and capital outlays which lag the original infrastructure blueprint. The budget deficit was 4 percent of GDP, but hydrocarbon stabilization fund savings will keep public debt low. The dinar depreciated slightly but broadly reflects fundamentals, the analysis asserts. The central bank continues to absorb excess liquidity through two facilities, but should as well consider hiking benchmark rates to buttress the managed float currency regime, it suggests. Medium term official finances could worsen on commodity correction as deficits would be met exclusively through government borrowing as the current account balance turns negative. Better tax administration and targeting of social transfers can aid the budget, and after this year’s minimum salary increase labor policy should focus on redressing 20 percent youth unemployment. Subsidies and debt rescheduling for designated small and midsize enterprises should not be permanent budget features, the Fund recommends. State-owned banks still account for 90 percent of the sector which lacks a central credit registry. Only a half-dozen stocks are listed on the tiny exchange, which may benefit from connections under discussion with Francophone West Africa’s regional counterpart. A distressed asset management company in formation to take long non-performing loans may also help with modernization as the main post-independence party otherwise clings to old methods.

Argentina’s False Positive Pivots
2012 February 6 by admin

Posted in: Latin America/Caribbean
Argentine bonds roller-coastered to the top of the EMBI charts as President Kirchner’s thyroid cancer scare proved to be misplaced post-surgery and months of post-reelection capital flight abated with a stiff crackdown on dollar circulation and industrial and consumer imports. Sniffer dogs have been deployed to detect undeclared greenbacks heading across the river to Uruguay during the Southern Hemisphere summer, and the trade blocks are designed to preserve the surplus under literal fire from a prolonged drought savaging corn and soybean crops. The immediate post-crisis 2009 harvest was destroyed by such natural disaster as the administration moved to hike export taxes, angering the ruling Peronist party’s key farmer constituency. The agricultural lobby has since reconciled with the government, which is now under pressure from anti-mining groups to suspend projects for alleged environmental harm. Provincial authorities recently took action against a Canadian-owned gold venture in response to protests, while national ministries have been reluctant to alienate new investors although they advocate a tougher stance against longtime oil giant YPF controlled by Spain’s Repsol. Higher energy prices which will further bite with subsidy removal have drawn popular criticism, especially since they conspicuously affect inflation officially claimed to be at 9 percent versus the 20-25 percent presumed by outside estimates. Statistical credibility was openly challenged by the IMF after technical assistance providers found continued GDP growth and price measurement misalignment with international standards, and placed Buenos Aires on six-month notice to improve data or face consultation cut-off. Private analysts who court fines and criminal investigation for such actions have also begun questioning fiscal accounts amid suspicion that the primary surplus has disappeared. Capital outflows have been reduced to several hundred million dollars monthly as the peso’s imputed value hovers at 4. 75 given heavy central bank intervention.

GDP bond warrants will not pay out this year as growth will slide to 2-3 percent, based on consensus projections. This kicker may feature in the Greek swap that is often stacked against Argentina’s precedent, with commercial creditors pointing out that the EU’s Eurostat is a more reliable output monitoring source. However a parallel is also drawn with the official sector’s arbitrary negotiating approach and deal terms which resulted in a decade-old exile from international fixed-income markets. Holdout funds that have gotten billions of dollars in New York and London court judgments but been unable to collect have raised the stakes in Washington by obtaining passage of legislation to withhold multilateral and duty-free aid pending satisfaction. President Kirchner, who announced unemployment at a record low after her brief debilitating bout despite widespread belief it is stuck at double digits, has nonetheless spurned such chinks in the longstanding model.

Saudi Arabia’s Recalcitrant Remittance Reliance
2012 February 2 by admin

Posted in: MENA
As Saudi Arabia, the region’s largest stock market, prepared the ground for further non-GCC access after lukewarm embrace of the five-year old indirect swap scheme, new Labor Ministry policy to curb migrant worker remittance outflows offset enthusiasm with its downbeat implications at home and abroad. The past year has witnessed a renewed “Saudization” push, especially for high-skilled and management jobs in response to Arab Spring-emphasized youth unemployment as the public sector minimum wage was boosted and additional training benefits granted. Asian and MENA expatriates are 7. 5 million according to the World Bank, and in 2010 sent $25 billion back to source countries. The unspecified ceiling is designed not as much to protect the balance of payments, which generates a 15 percent of GDP surplus on oil proceeds, as to deter executive influx to free positions for locals. Economists also cite the forced transfer to domestic consumption which can ease the burden on infrastructure spending which at the programmed pace will produce budget deficits by mid-decade. The government is also trying to lure poorer citizens who reportedly could be recruited by terror groups into lower-salary construction slots needed to fulfill the 2011 pledge for 500,0000 more houses. Lack of inventory has been a major inflation cause and real estate transactions will be further aided by the passage of a long-debated mortgage law. The transfer crackdown coincides with the senior royal transition to the next King and increased friction with OPEC and strategic adversary Iran which has again threatened to shut the Strait of Hormuz in response to international trade and financial sanctions. Tehran had previously been accused of attempting to assassinate the Saudi Ambassador to the US, and the combination of diplomatic and commercial tensions dragged the non-oil PMI to the mid-50s level.

Egypt, which has resumed negotiations on IMF help with the loss of half its international reserves to $18 billion since President Mubarak’s ouster, accounts for the largest remittance contingent at over $5 billion which has been vital to countering the chronic trade deficit and facilitating domestic demand. The infusion has also supported the pound around the 6 to the dollar mark as the interim political structure strives to maintain the peg amid debt and inflation woes and election results pointing to Muslim Brotherhood victory. Tourism at one-tenth of GDP has disappeared and strikes and ambiguity over property rights continue to stifle FDI. Jordan too, where 2011’s stock market drop was not as severe, provides a huge workforce and without remittances the current account gap would be close to 20 percent of GDP. Saudi Arabia is also a leading aid contributor to cover the worsening budget deficit as King Abdullah’s reshuffled arrangements remit subsidy responsibilities to parliament.

Kenya’s Pesky Performance Indictments
2012 February 2 by admin

Posted in: Africa
Kenyan shares seeking to break from 2011’s abysmal African frontier showing were again trounced by Hague tribunal indictments of Finance Minister Kenyatta and other prominent figures for inciting hatred during the last elections as political and tribal groupings prepare for the 2013 rematch. The writs follow lengthy maneuvering which had considered domestic human rights panel alternatives before allowing international prosecutors to press their investigations. According to the findings, thousands died in ethnic fighting and lands were seized and never returned as subsequent resettlement slowly occurred. Security forces were deployed to pre-empt further unrest after the announcement, which reactivated popular outcry over the tragedy as economic pain bites. Food and fuel-driven inflation is 20 percent, and the shilling in recent months plunged below 100/dollar as emergency IMF credit was obtained to forestall a balance of payment crisis. With heavy domestic borrowing as T-bill rates quintupled over the past year the public debt ratio approaches 60 percent of GDP. The benchmark central bank rate is 18 percent as listed lenders struggle with volatility in the government securities portfolio and mounting bad consumer and corporate credit provisions. Treasury paper tops the sub-region in amount outstanding at one-quarter of GDP and maturities out to 30 years, although corporate instruments trading on the Nairobi exchange remain at a “nascent stage,” according to recent IMF analysis. Capital markets are overly confined to state issuers and the investor base is comprised disproportionately of banks and pension funds which prefer to buy and hold, cramping liquidity. An East African Common Market is slated for mid-decade which will allow cross-listings and align regulation, infrastructure and taxation. Burundi and Tanzania still must liberalize the capital account, and supervisors have a joint body which has forged uniform registration criteria for the larger exchanges. Plans call for demutualization and eventual integration, although debt and equity price changes are largely uncorrelated, according to empirical data.

The Fund urges area authorities to incorporate strategies such as the supra-national one in the CFA Franc zone with a unified bourse or the Asia Bond Market Initiative-type cooperation among Asean members for better policy and practical outcomes. Multilateral institutions could be regular sponsors and issuers as the East African Development Bank and other parties become more active. The official resort could turn more compelling according to the response by African commercial banks to the IIF’s latest emerging market lending conditions assessment. It revealed a “sharp deterioration” in local and external funding availability amid still strong trade finance demand as commodity exporters face their own trials.

The World Bank’s Worst-Case Wallowing
2012 January 30 by admin

Posted in: General Emerging Markets, IFIs
As President Zoellick is increasingly vocal about urging joint international public and private sector anti-crisis action near the end of his term, the World Bank rendered a grim global economic reading advising developing countries to “prepare for the worst. ” Their 2012 GDP growth forecast was clipped to 5. 5 percent from the previous 6 percent as all regions “feel the blow” from Eurozone and industrial world debt and banking stress. Fiscal space is far narrower than in 2008-09, with 40 percent of the group running deficits of at least 4 percent of GDP. Monetary policy easing could help where viable but 30 emerging economies have immediate external financing needs above 10 percent of output. Corporate issuance in particular could be compromised as bond spreads widen, and lower commodity prices could damage both company and sovereign balance sheets. The report recommends contingency planning for these shocks alongside the potential fallout from cross-border financial sector deleveraging. Wholesale interbank sources could disappear and bubbles could puncture in locations where credit expansion has been rapid in the post-Lehman period. Current account positions could deteriorate sharply both from reduced trade and remittances as 2011 overall private capital inflows were off 10 percent to just over $1 trillion. This year in the separate categories bonds and loans and FDI are all expected to drop while portfolio equity allocation at $60 billion will remain just half the 2010 level. In the last six months major emerging market currencies have lost more than 10 percent against the dollar, reversing a secular appreciation trend. Raw material values outside oil, especially metals and food have weakened over the past year, generating lower inflation. Energy is subject to higher geopolitical disruption with Arab spring-aggravated tensions worsening in the Middle East. These scenarios could be more severe with a plausible credit freeze in large Euro-area economies, and vulnerability is uniformly greater than during the last episode, according to the outlook.

Fifteen developing nations have public debt-GDP ratios above 75 percent and external financing requirements come to almost $1. 5 trillion. The sum has been roughly constant since 2008 with exceptions like India where foreign borrowing has jumped 40 percent as a fraction of output. For Turkey and others also with large current account gaps the situation could be “acute,” while Central and Eastern European bank units dependent on Western parents face commercial and regulatory network retrenchment. Austria’s recent supervisory edict to limit engagement is a “worrying development” as the original Vienna Initiative presence pledge no longer holds, the Bank notes. New IMF and industry surveys show trade finance conditions are again degenerating under market and oversight pressures, and could impede rollover of $1 trillion in short-term debt under a 5-year long rolling crisis.

Latin Borrowers’ Ringing New Year Endorsement
2012 January 30 by admin

Posted in: Latin America/Caribbean
Brazil and Mexico debuted 2012 10-year issues at below-Europe 3. 5 percent range yields on heavy demand hailing net creditor status and good fiscal management and growing banking ties between the region’s biggest economies. Brazil’s leading private lender Itau-Unibanco indicated near-term interest after opening an operation in Colombia, especially to compete for securities underwriting after Latin America completed $150 billion in mergers last year. The government got $825 million in orders for its global bond re-tap after selling out in the first half-hour. Subscribers downplayed disappointing consumption and industrial output figures which kept GDP growth at 3-4 percent as inflation touched the upper 6. 5 percent target, as they expect rate cuts to inject stimulus while service prices stabilize. The primary budget surplus will be maintained and state development institution BNDES will restrain portfolio expansion. Other larger public sector companies are undergoing management reshuffles as President Rousseff seeks to install her own professional team and limit the corruption potential that has already forced numerous cabinet departures. Commodity exports have been hurt by an orange juice pesticide scare and portfolio equity flows remain skittish, but the strong foreign direct investment pipeline should firm the real to around 1. 8/dollar. Personal loan defaults rose 20 percent, the most in a decade in 2011, according to credit bureaus, but have begun to taper as borrowers deleverage. The improving delinquency story helped Banco do Brasil place a breakthrough perpetual note that lifted its share price after financials took a 20 percent drubbing the past 12 months. On foreign policy the administration also steered clear of the Iranian president’s visit to the continent after former President Lula courted him as an ally and brokered a brief peaceful nuclear enrichment pact. Officials have turned their attention to the hemisphere and recently agreed to authorize an extended stay for Haitian migrants on the second anniversary of the epic earthquake. The country is among a handful to honor original aid commitments, and a major Brazilian executive delegation recently attended a business conference organized by the Inter-American Development Bank.

In Mexico the 3. 7 percent yield to maturity was the lowest ever as external debt rollovers for the rest of the Calderon presidency were previously accomplished. The Finance Ministry continued to conduct opportunistic liability management, and the GDP growth forecast has been upgraded to 3 percent on neutral inflation for this election year. The PRI candidate, despite several gaffes, is comfortably ahead in opinion polls, and the peso after a late-2011 battering is widely considered undervalued on both fundamental and econometric grounds. On the anti-drug front cooperation with Central American neighbors along with the US has become a priority as wanton violence selectively crushes celebration spirit.

Russia’s Opposition Capital Movements
2012 January 27 by admin

Posted in: Europe
Russian stocks, despite low single digit p/e draws, skidded as 2011 capital flight came in at the $85 billion estimate, as the central bank continued to track heavy corporate debt repayment overseas and individual account withdrawal which reached record sums in the final quarters coinciding with parliamentary elections and subsequent unrest. Ratings agencies predict worsening flight through the March presidential contest, where Putin will stand again against authorized opposition candidates to include previous administration loyalist and billionaire business executive Prokhorov. Former Finance Minister Kudrin has also appeared at public rallies criticizing higher military spending and pre-poll pension and wage hikes that undermine fiscal balance. Oil and gas taxes cover half the budget and another $60 billion will be borrowed domestically this year as officials also reserve the right to tap the remaining $25 billion “rainy day” fund. The per-barrel crude price to keep the budget in line was raised to $115 as the current account surplus may also halve to 2 percent of output. Uncertain commodity values are combining with the Eurozone crisis to cap GDP growth in the 3 percent range. The continent takes the bulk of energy exports and almost half of foreign reserves and the currency regime “basket” are in euros as the ruble continues to soften separately against the dollar on interest rate easing and political risk. European banks in Moscow despite new WTO opening that will permit a 49 percent ownership share have reduced their presence and transferred assets cross-border to support parents, with the exodus termed a “significant vulnerability” in an IMF system stability assessment. The state-owned behemoths Sberbank and VTB now overwhelmingly control both commercial and investment banking, the latter to be promoted by the just-completed merger of the MICEX and RTS exchanges which will house a long-elusive central securities depositary. It will trade stocks, bonds, currencies and derivatives, and offer a larger platform for repatriation of IPO activity that still gravitates toward London. Consolidation will facilitate non-resident access to local corporate debt, mostly quasi-sovereign, which has attracted both conservative and speculative buyers.

However appetite may be disturbed by the size and frequency of street confrontations last seen in the immediate post-communist era, reinforced by the country’s perennial poor showing in Transparency International rankings and a December OECD report castigating the ‘weak” rule of law and “restrictive” trade and investment practices. Authoritarian drift has been a renewed theme as well in Emerging Europe’s parallel pole in Turkey, where the Council of Europe has strongly criticized human rights and judicial behavior as trials proceed against suspected military coup plotters and independent media. President Erdogan at the same time implicitly challenged central bank autonomy with a denunciation of the “interest rate lobby” advocating tougher anti-inflation steps as mainstream economic observers try to press their case.

Capital Flows’ Blocked Blandishments
2012 January 27 by admin

Posted in: General Emerging Markets
The IIF, while leading private Greek debt restructuring negotiations at an impasse over coupon rates and official creditor burden-sharing, slashed its 2011 and 2012 cross-border capital flow tallies to reflect lingering Eurozone and global throttles. The original $1 trillion expectation last year will come in 10 percent less, and this year’s total will slide another 15 percent to $750 billion for the 30 countries monitored. The “sharp drop-off” began in Q3 and is likely to extend through the first half, with the cumulative revision coming to almost $350 billion, hitting bank lending most by segment and Asia by region. The precipitous fall reflects the pro-cyclical experience of the 2008-09 post-Lehman shock, and the report points out that China slowdown concerns have combined with the euro crisis in recent months. FDI has held up in all geographies over the period, and bond and equity allocation may not suffer as much with the upgrade tendency in emerging market credit ratings. In 2013 flows could recover to $925 billion, still below the 2007 peak both in comparative sums and fractions of GDP. Almost half this amount will be in direct investment form and will increasingly concentrate between developing economies as previous inward and outward capital controls are relaxed. Already Chinese banks may be stepping in as European counterparts retrench in Asia, according to the survey. With the latter’s $5 trillion in claims on all emerging economies, currency zone breakup and other worst-case scenarios would entail “massive implications. ” The December loan conditions reading showed clear deterioration with the index below 50 as supply and standards tightened, although trade finance is still available. The GDP growth forecast for the universe was shaved to 5. 5 percent, although lower inflation at 5 percent allowing rate easing should keep real yields appealing versus the industrial world. Incremental progress in current account “rebalancing” has been seen with the unwavering appreciation of the Chinese yuan against the dollar, but Gulf oil exporters have been an exception as their joint surplus doubled to $300 billion last year.

Asian stock market inflows were only one-sixth of 2010’s $120 billion, and will only “gradually revive” in the near term. In Europe bond participation will fall one-third, with Hungary, Turkey and Ukraine most at risk with their balance of payments and external funding positions. In Russia annual capital flight after December’s disputed legislative elections may be close to $150 billion, in contrast to Latin America, outside Argentina and Venezuela, which is “holding the fort. ” However in the Middle East only official flows will jump noticeably as private investors in Egypt and elsewhere continue to observe the Arab Spring barricades.

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Nigeria’s Subsiding Subsidy Subordination
2012 January 19 by admin

Posted in: Africa
Nigerian stocks shook off 2011’s lethargy of a near 20 percent MSCI drop as the government proposed elimination of $8 billion in yearly petrol subsidies which doubled the overnight station price and drew labor union and opposition party condemnation before partial backtracking. Violence erupted in Lagos and other cities on the announcement in the wake of northern religious attacks mounted by Muslim extremists which have also prompted a security crackdown. The cabinet convened in emergency session to reiterate its commitment to better fiscal discipline which will permit additional infrastructure and anti-poverty spending, and analysts commented that the program savings will be roughly equal to the annual budget amount diverted to corruption. Such reform scope was cited by S&P in a recent outlook upgrade and the subsidy removal, which still faces numerous parliamentary and administrative implementation hurdles, and complements broader oil industry overhaul designed to set participation and royalty terms for Western and Asian multinationals. Almost 8 percent GDP growth was registered last year on inflation just into single-digits. The central bank lifted the benchmark rate to 12 percent, and the central bad debt resolution agency AMCON went operational as a $1 billion sovereign wealth fund was established. Financials continued to be the biggest exchange losers with bellwethers like UBA off 75 percent while consumer staples were performance leaders. The Sub-Saharan frontier MSCI sub-index matched Nigeria’s fall with Kenya (-30 percent) and Botswana and Ghana, down each over 5 percent at the opposite result extremes. Zimbabwe, which just rejoined the investable universe, finished flat with a 1 percent decline. A year ago Nigeria launched its first external sovereign bond and with the relaxation of controls local-currency instruments have reappeared in global diversified portfolios.

Under the returning Finance Minister who championed the concept during her World Bank Managing Director stint, a dedicated international diaspora issue is foreseen in the new budget. Kenya targeted both expatriate and retail investors in its latest effort, and in West Africa neighboring Gabon and Senegal may be considering repeat Eurobond efforts. 2012 presidential elections are scheduled in both places and commodity-driven GDP growth is 4-5 percent on low inflation. Gabon’s hosting of the Africa cup and “green” initiatives are part of a $10 billion spending spree financed by fiscal surplus, although possible startup of a state airline has prompted ratings agency and multilateral lender criticism. Senegal’s octogenarian chief executive Wade is seeking another term and popular singer N’Dour has come forward to pose his candidacy without political experience he considers of questionable value. It is under a policy monitoring arrangement with the IMF which called for improved debt management as near-term strategy envisions large borrowing on the regional CFA franc market which may command a premium on fiscal and current account foibles.

The Caribbean’s Counterintuitive Crest
2012 January 19 by admin

Posted in: Latin America/Caribbean
In contrast to the rest of the MSCI universe, Caribbean frontier components Jamaica and Trinidad and Tobago enjoyed 25 percent gains in 2011 as sovereign and financial sector debt collapses were avoided. They swooned briefly late in the year on surprise opposition party election victory and a reported coup attempt in the respective locations. The regional stock exchanges including Barbados now feature cross-listing and trading after lengthy preparation with development institution technical assistance. Jamaica’s National Commercial Bank pioneered a joint move. External bonds are tracked separately in a sub-index of JP Morgan’s EMBI to facilitate investment in these instruments.

Jamaica’s capitalization is the largest at $7 billion, and in response to the 2008-09 crisis it entered a 3-year $1. 5 billion IMF program and completed a $10 billion local bond exchange to contain the 125 percent of GDP public debt ratio. The deal emphasized maturity extension with nominal net present value reduction for domestic banks that held the overwhelming portion of the paper. With fears that never materialized that the repo market would freeze or recapitalization would be needed, a backstop balance sheet and liquidity facility was arranged. 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.