No More Learning

His lead stands at double-digits despite commentator jabs at his intellect and questions of favorable deals during his tenure as state governor. Unlike the historical tendency all three candidates vow to tighten relations with Washington to further trade and anti-drug agendas, while they allow for future bilateral Nafta modifications and narcotics decriminalization.

Their stance may be tamer than Brazilian President Dilma Rousseff’s during her April visit to the US, where she lambasted the “monetary tsunami” triggered by the Fed’s near-zero interest policy and insisted the WTO investigate possible exchange rate manipulation. She also pressed for answers on a defense contract won by aircraft maker Embraer that was later suspended and solicited support for a permanent UN Security Council seat. With the benchmark Selic due to revert to its post-crisis low under 9 percent the central bank is now demanding that domestic lenders reduce record spreads after erecting a complex of anti-appreciation measures against foreign investors. The development giant BNDES will receive a fresh infusion for infrastructure and strategic sectors that find strict definitions discounted in a sudden shopping frenzy.

European Banks’ Deleveraging Mechanics
2012 May 7 by admin

Posted in: Europe
After previously ruing the ramifications of cross-border bank rebalancing for emerging Europe, the April edition of the IMF’s Global Financial Stability Report cited a specific figure of $2. 5 trillion or 7 percent of total assets on near-term deleveraging to meet business and regulatory objectives. One-quarter of balance sheet shrinkage will come from lower lending and the remainder from securities and other portfolio sales, with a baseline assumption of 2 percent European credit withdrawal which could cause “serious damage” if broad and simultaneous. 80 percent of the cuts have already been detailed in large bank group plans prepared for shareholders and the EBA to attain prudential and return standards. On a geographic basis Asia and Latin America are included in pullbacks, while wholesale segments like commodity, project and trade finance also fall under the hammer. In late 2011 euro-area banks slashed emerging market lines almost 10 percent according to the BIS, and in contrast with the post-2008 crisis the shift may now be structural and “persist for a longer period” the Fund believes. It notes on the positive side that export credit has held up globally with Chinese and Japanese institutions in particular filling the recent gap. Emerging EU members will see a 5 percent drop in private credit over the next two years at a delicate juncture where currency depreciation and high foreign ownership of local debt already pose vulnerabilities. Sovereign debt troubles there could bring systemic risks to Austrian and Belgian parents and magnify capital flow volatility in other regions, the review warns. Brazil, China and other destinations are in “advanced stages” of their own credit booms with 20 percent-plus annual growth requiring internal industry and monetary policy adjustments which would be complicated by external shocks. Their government instruments may eventually enter the worldwide “safe asset” category which has narrowed 15 percent or $10 trillion with OECD country downgrades and the collapse of the securitization market. In developing economies bank holdings of state paper can be at 20 percent of the overall portfolio whereas only Japan has such concentration among industrial powers. Lagging size, infrastructure and legal recourse remain impediments to achieving haven status as emerging market financial depth is still just 20 percent of the global total although the GDP portion is twice that amount.

To challenge the latest ratings direction European officials have called for launch of a new agency under their auspices while Germany’s Bertelsmann Foundation has designed a blue-print for a non-profit alternative that would be operated in all regions drawing on an initial $400 million endowment. It would apply traditional creditworthiness alongside a series of proprietary governance and transformation indicators that could better define sovereign grading as a public good after another burst of bad private determination.

Cartagena’s Post-Summit Tourist Travails
2012 May 4 by admin

Posted in: Latin America/Caribbean
The Americas Summit in Colombia concluded without commercial or diplomatic breakthroughs as notoriety focused on US Secret Service nocturnal leisure activity in the popular vacation spot with other regional destinations also under the microscope for their own event risks. Host President Santos reaffirmed direct and portfolio investment overtures as the central bank paused while warning of possible credit overheating and reserving the right to take new anti-appreciation currency measures. Following the meeting he promptly denounced Argentina’s YPF seizure as the opposite of his administration’s welcome as Chile’s Codelco considers cross-border mining ties and oil production reaches fresh records. However in cracking down against former paramilitaries while pursuing rapprochement with FARC guerillas and Venezuelan counterpart Chavez, he may be breaking with his predecessor’s hard security stance embraced by the conservative business community at home and abroad that have been traditional allies. Although no change was agreed there on including Cuba and ending Washington’s trade boycott, he also called existing practices toward the communist bastion “unacceptable. ” Colombian financial executives attending hailed the “positive atmosphere” but noted leaders’ preoccupation with their own political and economic futures once more frustrating hemispheric solidarity despite minor accords on energy and broadband and academic cooperation.

The talks proceeded in the wake of a harsh IMF review on Jamaica as its new government tries to resurrect the standby accord which narrowly skirted debt default. GDP growth is minimal even with better visitor numbers, while inflation is over 5 percent, the fiscal deficit is 6 percent of GDP and the current account gap is twice that proportion. Remittances are up from North America and Europe but reserves dipped below $2 billion with multilateral lender repayment and oil import costs. Banks that endorsed a domestic maturity extension as part of the original structure have hinted at renegotiation as balance sheets are squeezed, and external bonds have been avoided on the prospect they too could be restructured. That outcome will definitely be repeated in Belize after the results of March elections where Premier Barrow got another term on a platform to reduce the stepped-up coupon load of the so-called “superbond. ” Prices rallied on his desire for an “amicable” process as tourism which accounts for one-third of output and jobs was steady. The economy should expand 3 percent and the budget deficit is modest given the expected higher interest bill under a revised formula. In the Dominican Republic hospitality inflows increased 5 percent as the incumbent party may hang on to the presidency despite IMF program non-compliance and the chronic power crisis. As an active EMBI component, holders favor it over Costa Rica where the Chinchilla team planned a market return but was repelled on prerequisite tax reform as sharks circled.

Central Asia’s Off-Center Interference
2012 May 4 by admin

Posted in: Asia
Kazakh bank external debt was again marked down and shunned as BTA requested another round of creditor concessions from the committee comprised of well-known houses like Ashmore and JP Morgan who had previously acquiesced to two-thirds reduction. The state investment fund, in pursuit of assets reportedly stashed abroad by its former chief executive, a relative of President Nazarbaev, rejected help after a missed payment on the restructured 2018 Eurobond. The estimated hole is $5 billion, and larger Halyk Bank has urged the government to liquidate the unit to end the continued slide. System non-performing loans remain one-third of the total, with S&P placing it in the “high risk” category. With hydrocarbons’ upswing GDP growth should hit 6 percent on inflation around the same number, but demand is cooling for main customers China and Italy. The budget deficit lingers and the projected current account surplus at 4 percent of GDP could be endangered by income repatriation as foreign energy firms try to cope with ever shifting ownership and royalty divides. International reserves have rebounded to $35 billion with an additional $45 billion available in the backup stabilization fund but the central bank continues to draw on the pool to maintain the exchange rate corridor established post-crisis. Rumors of the President’s ill health have been rampant after recent parliamentary elections which allowed formal opposition, and the stock market has been a frontier leader on his promise of “people’s ipos” to distribute wealth to all citizens as a legacy. His reputation has been battered by oil field unrest and a lackluster agricultural harvest that may reintroduce food shortages. In neighboring Mongolia popular mining share flotations have also been announced, but the key South Gobi coal project was recently challenged by authorities over dealings between Canadian and Chinese developers. The company which is dual-listed in Hong Kong and Toronto experienced a 10 percent price drop and its auditor resigned on the inquiry. The sovereign-guaranteed Development Bank issued a 5-year bond in March yielding 5. 75 percent on eager appetite but soon after the former President was arrested on corruption charges underscoring political fragility in the run-up to parliamentary elections. GDP growth and inflation are running at double-digits with a persistent fiscal deficit despite adoption of a responsibility law.

The country has exited its IMF program, unlike in Georgia further afield where a new $400 million precautionary arrangement was just inked. Elections are approaching with strong opposition to the US-educated president and his party, as the government tries to emphasize public-private partnership potential in resort building and other areas which brought a visit from New York real estate mogul Donald Trump. Unemployment is over 15 percent, and the current account gap is 12 percent of GDP, which investors may not have foremost on their mind considering novelty value in an exotic EMBI sub-index.

Angola’s Residual Oil Anguish Angles
2012 May 2 by admin

Posted in: Africa
As Angola completed its IMF standby arrangement centered on better oil revenue management and transparency and again broached the possibility of sovereign bond entry, the US Justice Department circulated findings of a foreign corrupt practices investigation showing both past and sitting officials with hidden joint venture ownership stakes and payments. Election preparation is underway as the ruling party tries to chart succession and allow greater opposition, and to prevent resurgence of state arrears to domestic contractors and suppliers after several rounds of clearance with administrative streamlining and tighter fiscal policy. A formal stabilization fund may be created to handle petroleum export proceeds as Sonangol looks to document the “unexplained residual” of large outflows and murky accounts which may total one-quarter of GDP according to the Fund. Government budget transfers are to proceed in timely and verifiable fashion to prevent another 2009-type liquidity crisis under the provisions of a new fiscal responsibility law. Priorities since then have been to rebuild international reserves and ensure social and infrastructure spending, as banks adapt to construction slowdown and gradual foreign exchange liberalization. Only 40 percent of loans are in kwacha, and institutions face further currency and counterparty risk from relationships with entities in Portugal, itself the recipient of both bilateral and multilateral assistance. With reduced monetary expansion inflation could go to single digits as non-oil GDP growth stays around 7 percent. The T-bill market is active out to one-year and authorities plan to develop the segment alongside a nascent stock exchange. Financial market scope badly lags rival energy powerhouse Nigeria, where foreign investors have poured into high-yield local debt on the back of naira strength and banking sector cleanup. The sovereign wealth fund there will soon be launched and was championed by Finance Minister Okonjo-Iweala, who lost her bid to become World Bank President but has promised to redouble subsidy and power industry reform efforts despite initial setbacks and insertion of the Boko Haram terror threat on the pressing political and economic agenda.

In Zambia, which was also seen as a near-term maiden issuer, the ratings outlook went to negative as the new administration pledged to renegotiate copper mining projects and withdrew opposition party certification. Both gestures may moderate over time, as the president’s team seeks to reinforce democratic credentials in continental and global circles and maintain mainland China partner interest as industrial conditions at home deteriorate under the latest PMI readings and forecasts. A $500 million-range Eurobond is still in the works as the budget deficit has doubled from 2011 and electricity shortages plague both agriculture and metals production which previously sparked direct and portfolio investor excitement.

Greece’s Escape Clause Cues
2012 May 2 by admin

Posted in: Europe
A month after completing a signature bond swap which imposed a record loss while retroactively altering contracts and subordinating private creditors in a perilous Euro-zone precedent, the Greek central bank warned that future membership was in doubt as this year’s GDP drop was put at 5 percent, as the European Investment Bank began inserting drachma conversion clauses into infrastructure project documents. Local banks took a EUR 25 billion haircut and will need at least twice that amount in recapitalization under the second EU-IMF program, as Cypriot lender without that backstop scrambled to absorb similar damage. Around EUR 5 billion in foreign law instruments were not exchanged and holdouts may try to press their case in light of a New York decision in the lengthy Argentina fight ordering pari-passu payment of claims. The US government has filed a brief against the interpretation and officials in Athens stress they lack funds to cover the whole amount. A large redemption comes due a week after elections in which neither of the two main parties will be able to command popular support according to opinion readings which show strong extremist inroads. Further budget cuts must be found by June for next year following the latest Troika review, with provisional data indicating a 9 percent of GDP deficit. The current account gap will fall slightly from that level in 2011, while bank deposits off EUR 70 billion since the crisis onset continue to flee the system. In Portugal, which has also slipped back into the emerging market class after removal from world bond indices, the external balance has likewise improved and several privatizations have occurred. Corporate and household debt burdens far outstrip the public one at 115 percent of output, and 15 percent unemployment will be aggravated by labor reform opposed by powerful unions. The next big commercial bond amortization is in September 2013 when access is to be regained, but investors remain dubious of that outcome as well as the state’s honoring of numerous company borrowing guarantees.

In traditional emerging Europe, Hungary was placed at the top of the IMF’s list for bank and sovereign spillover as corridor negotiations over a new facility unfolded over its spring gathering. The EU has reopened the way for assistance after clarification of central bank law changes and submission of a revised fiscal adjustment blueprint which envisions near zero economic growth this year. The benchmark interest rate was kept at 7 percent despite the forint again touching 300 and medium term bond yields almost 9 percent, as negative retail sales choked consumption. To meet the 3 percent of GDP convergence target a new financial transaction tax will succeed the special one applied by Prime Minister Orban whose opinion polls now single out reckless decisions.

Turkey’s Power Projection Pushbacks
2012 April 27 by admin

Posted in: Europe
Turkish stocks finished Q1 with a solid European showing after drifting on continued confusion over political and geopolitical stands and monetary and exchange rate policies as prime minister’s Erdogan’s health also invited doubts with scarce public appearances. Diplomats have led the charge to sanction and oust the Assad regime as Istanbul hosted an international meeting of ‘free Syria” groups and supporters considering weapons aid. The military at home again came under condemnation from the ruling party after alleged coup plotting as human rights abuses during its time in government decade ago were recalled with victims still seeking compensation. The grip on journalists which has included fines and detentions relented on EU criticism as writers investigating the ties between the government and the Gulenist Islamic school movement were let out of jail just before facing trial. Exposure of the relationship provoked a purge of the police and judicial ranks as new intelligence service heads were also installed. Skirmishes with Kurdish forces resurfaced and officials were drawn into a rancorous debate in France over legislation marking Armenia’s World War I losses and purported Turkish ethnic brutality often labeled genocide. 30 years after the army changed the charter constitutional reform remains a major agenda item despite the absence of a super-majority to facilitate a possible switch to a powerful presidential system. In the regional stakes, relations with Iran have cooled as it still backs Damascus and companies and banks are pressured to join the oil and financial embargos against its nuclear program and NATO maintains an important base as airstrikes are contemplated against Tehran. Its stock exchange has dipped on the tighter sanctions which have pummeled the currency and prompted the central bank to lift benchmark rates to 20 percent as a string of planned privatizations otherwise drains liquidity.

Turkish monetary head Basci has stood by the unorthodox approach using multiple tools in an effort to slow double-digit credit growth and reduce inflation to the 6 percent target, and added a twist as the weekly repo moved from a quantity to price model and then was suspended. Consumer lending has dropped markedly at 20 percent rates, which have also managed to curb import demand to tackle the 10 percent of GDP current account gap. A firmer lira has diminished the intervention need for dipping into reserves, which now cover only 4 months of goods purchase. Heavy domestic debt redemptions were successful over the quarter while foreign issuance diversified to the Samurai market. Although economic growth will halve from last year to around 4 percent, unemployment is under 10 percent. The primary surplus has upheld fiscal discipline in the absence of a responsibility law despite sudden attention to the glaring lack in other realms.

Cuba’s Papal Blessing Blemishes
2012 April 27 by admin

Posted in: Latin America/Caribbean
Cuban debt saw rare actions in the exotics market as the Pope visited the island to encourage religious revival and was warmly received by the Castros at the same time Venezuelan benefactor Chavez underwent further anti-cancer treatment as opinion polls showed him tied with unified opposition candidate Capriles for the October presidential contest. The closed-end Miami-based Caribbean Basin fund which has targeted a post-US trade embargo for decades with investments in cruise lines and food companies, also enjoyed a brief pop as the visit triggered Washington discussion of further restriction removal with educational, family and remittance connections already flowering. According to outside observers GDP growth should be 3 percent this year after the leadership sanctioned individual private business launch to absorb the shedding of hundreds of thousands of state employees at loss-making firms. Smallholder agriculture could also receive credit and equipment inputs under the changes in an effort to revive commodity exports that have concentrated on nickel and recent discovery of offshore oil. Services, in particular medical professional deployment is the primary balance of payments support, offsetting a large bilateral goods deficit with Caracas. Chinese loans are available for commercial purchases, and Brazilian joint ventures operate in the tobacco and ports sector. While Havana has dismissed relation with the “colonial” Bretton Woods institutions with their historic Western dominance it has edged closer to regional lenders including the new “Bank of the South,” Andean Investment Fund and Caribbean Development Bank. Although not a member of the OAS democratic club, many members have urged participation and dialogue at periodic Americas summits such as April’s Colombian one. Cuban officials have reportedly sought technical advice in such areas as currency and pension regimes in an effort to control retirement costs and manage an eventual switch from the artificial “convertible peso” pegged at par to the dollar for tourist use. According to end-2011 statistics 350,000 citizens applied for a business license but most kept their state jobs against the goal of half private sector transfer by mid-decade.

Longer-term recovery is likewise elusive in neighboring Haiti despite strides the past year from the epochal earthquake, the IMF finds in its latest snapshot. GDP growth at 5. 5 percent in FY 2011 was equal to the previous period’s contraction as inflation dipped to single-digits and fiscal and external positions strengthened. The currency has firmed against the greenback despite the financial system’s 60 percent dollarization level, but the tax revenue-output ration remains barely above 10 percent. Despite almost $1 billion in external debt relief, domestic arrears have accumulated and further liabilities will mount with Treasury-bill issuance. A new central bank law attempts to promote central bank monetary policy independence after long evading ruling power endorsement.

Saudi Sukuks’ Well Gusher
2012 April 24 by admin

Posted in: MENA
Saudi Arabia blazed onto the Islamic debt scene with a Gulf-leading $6. 5 billion in issuance in Q1, with the sudden entry of banks and utilities as Western-sourced project and syndicated finance vanished. One-quarter that amount came from a two-tranche state electric company instrument that was heavily subscribed from regional investors at a 150 basis point premium over the mid-swaps rate. The global total for the period was $45 billion, already half 2011’s overall activity, according to industry trackers. The UAE continued to be prominent despite headline rescheduling attempts by additional government-linked groups following the DW package. Family groups are tapping the market for the first time, and Abu Dhabi Oil diversified with a direct placement in Malaysia. However Dubai World’s Drydocks unit sought refuge in bankruptcy court as creditors took a hard line, and the parade of names in search of refinancing now includes the airline and its duty-free shops. Yields on the HSBC Gulf sukuk index had dropped to 4. 5 percent at end-March but have since crept up as oil prices have moved in the opposite direction. Both the Saudi and UAE stock markets have jumped 20 percent, behind only Egypt, and the former may join the MSCI roster this year with a formal opening to qualified international institutions and individuals. The dual Emirates exchanges missed the last promotion chance to the core universe, but are working on infrastructure and short-selling issues that may allow admission. Smaller area bourses have lagged, with Kuwait, Oman and Qatar in negative territory while Lebanon and Tunisia were flat. Despite the carnage in next-door Syria, a Lebanese Eurobond was well bid by banks and expatriates, and Tunisia’s government has secured a US bilateral guarantee to facilitate possible near-term external debt rollover. It can back a $500 million placement following a Treasury bond operation of that size with Qatar. The Islamic-party headed administration has emphasized job creation and capital mobilization efforts and has invited outside advice and support for small business startups as untangling of the previous Ben Ali legal and illegal holdings slowly proceeds.

Egyptian stock performance has veered to the top from the bottom of the pack, although the early year 40 percent surge has faded. The central bank has laid the foundation for its own sukuk thrust as Treasury auctions fail and longer-term yields approach 17 percent. Foreign reserves are off 60 percent since Mubarak’s resignation to a critical import coverage level, and a diaspora launch of special certificates of deposit is designed to gather funds with talks over a $3 billion IMF loan at a stalemate pending the outcome of Muslim Brotherhood-military jockeying for power and scheduled May presidential elections Withholding tax may be modified to stimulate domestic debt inflows while other stimulus is off the table with promised subsidy reductions to bring the fiscal deficit under 10 percent of GDP.

Indonesia’s Bashed Bric Hurl
2012 April 24 by admin

Posted in: Asia
Indonesian shares finished a lackluster quarter as the BRICS summit passed in New Delhi with no invitation for group entry and mass protests erupted against long-telegraphed fuels subsidy cuts to keep the budget deficit at 2 percent of GDP. Investors were already dubious about premium valuations over the regional norm and the corporate governance defects highlighted by the board of directors fight in major listing Bumi Coal where the family owners sidelined international outsiders. The cooking oil and petrol transfers absorb one-fifth of spending, and the government wants to use the proceeds for infrastructure after passing landmark land access and power and transport sector changes while better targeting help for the poorest. Inflation may double to 7 percent with the shift, on a more modest 6 percent economic growth forecast. Wage demands have risen in advance with sporadic labor unrest, and President Yudhoyono in the final stages of his second term has publically endorsed their cause. Consumption may flag under these conditions as the current account heads toward a deficit and the capital account inflows pause from their recent record pace. Commodity export prices are off with the country a net petroleum importer and relying on heavy equipment purchase abroad. Foreign holdings of local debt may dip below their post-crisis 30 percent share as the central bank continues to purchase large amounts for system stability and liquidity management purposes. An external sovereign bond was easily placed in January, and private direct and portfolio investors are asked to provide one-quarter the estimated 2 trillion rupiah funding envelope for electricity, port, and road projects through 2015. A March review by rater S&P points out that energy tariffs are “low, inflexible and non-transparent. ” The PLN monopoly unilaterally renegotiated contracts, which as a whole are poorly enforced according to the World Bank’s Doing Business measure. The new land acquisition statute is designed to slash costs and timing, and infrastructure guarantee and public-private partnership mechanisms have been upgraded.

Domestic state banks remain the dominant long-term money source, and the burgeoning Islamic sukuk market is well suited for risk-sharing as an alternative. The agency predicts FDI in these critical sectors could double as a share of GDP to 4 percent with “efficient administration,” but notes that lasting confidence will entail a series of policy and practical steps. The neighboring Philippines under President Aquino likewise unveiled a PPP push as the fiscal gap continues to come in under 3 percent of GDP. It has signed on to the US government’s Partnership for Growth aid effort which emphasizes power supply revamp, and exchange-listed privatizations are foreseen in the mix. Overseas worker remittances are intact as anti-corruption moves try to break from the past and prove their firmness.







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Greater China’s Hard Land Lumps
2012 April 18 by admin

Posted in: Asia
Hong Kong shares slackened on the dramatic arrest on bribery charges of the Kwok brothers whose firm has controlled a commercial and residential land empire for decades, just a week after self-declared populist Leung was elected chief executive in a tightly-managed race following a scandal involving the previous candidate Henry Tsang which flaunted ties to the island’s wealthy. Widening income inequality and poverty have suffused political debate amid the post-crisis property boom, and the new leader has promised to confront tycoons’ power despite his early role in supporting breakneck housing expansion. Developer stocks have long been under the microscope as the Monetary Authority attempts to brake lending alongside Beijing’s existing curbs that were reiterated at the latest gathering of top officials before the upcoming reshuffle. The enclave still suffers from a shortage of affordable flats underscored by the saga of Mr. Tang’s illegal wine cellar which itself was bigger than typical units. The economy may only grow 1 percent this year on re-export retrenchment as the outgoing government tries to find additional revenue for small-business and social spending. The soft patch and rich-poor divide have resurrected calls for universal voting and re-examination of the dollar peg as the renimbi again noticeably slips against the greenback for the first time since the mid- 1990s Asian financial crisis. In Taiwan following the re-election of President Ma electronics and manufacturing sales are also drifting and to pay for fiscal stimulus his team may impose capital gains tax. Investor wariness increased over the move in the wake of sudden Chinese naval activity in the area and several mooted joint banking ventures across the strait. Oil import costs further hamper prospects and the central bank may consider cuts in already low benchmark rates.

On the mainland the future politburo composition is in doubt with the unexplained purge of Chongqing boss Bo amid coup and Mao-era Cultural Revolution return warnings. The military has gotten a hefty budget rise and citizen revolts against provincial official land grabs and arbitrary treatment have brought in consensual replacements. Hong Kong brokers who have been idle even with reduced lunch breaks enjoyed a burst of activity with China Minsheng Bank’s $1. 5 billion capital raising, although it is believed to have large local government loan exposure which regulators wish to extend without write-downs over the medium term. One-fifth of these portfolios at close to $300 billion have been improperly classified in the safest category, they stipulated at the same time. Municipal pension funds have also been criticized for riskier allocation against established guidelines, and authority to issue debt will be confined to pilot efforts as debris is cleared from the hidden crash.

Mauritius’ Offshore Center Vertigo
2012 April 18 by admin

Posted in: Africa
Mauritian stocks continued lethargic as the global business corporation sector absorbed the implications of the Indian budget which seemed to herald further offshore-registered investor tax scrutiny for both current and past allocation. Tourism has already slowed on Europe’s troubles, putting the 4 percent economic growth forecast in jeopardy on inflation around the same level, with inflows also needed to bridge the 10 percent of GDP current account deficit and keep international reserves at just 4 months’ imports above the danger zone. Good share performance last year brought portfolio infusions spurred as well by capital gains levy removal, although the budget gap swelled toward 5 percent of output. With private credit demand slumping, special state loan facilities for small business could be activated, adding to the fiscal weight of numerous government-run enterprises which represent 15 percent of GDP. Interest rates are marginally positive, and rupee appreciation against the euro and pound has eased. Officials have unveiled an infrastructure upgrade program consistent with reducing public debt to 50 percent of national income by end-decade, and are considering pension revamp and steps to regain lost standing in the World Bank’s Doing Business rankings. Banks are well-capitalized and profitable, boosted by the recent advent of deposit insurance but ties to non-resident borrowers and related insurers remain murky, the IMF finds in its latest Article IV review. The central bank and securities market regulator should better pool risk information given lenders’ large government debt holdings and their status as big exchange listings, it suggests.

South Asian entities concerned about Gulf exposure during the Arab spring have looked at relocation to the island, but Dubai, with UAE stocks up double-digits, has offered reassurance of political and financial stability despite on-line petitions against the ruling family and debt rollover concerns still focused on the shipping unit of DW and other shaky issuers. The DIFC is seeking a loan to cover upcoming $1 billion bond redemption and the free trade zone is likewise in talks with a bank consortium to repay a $2 billion sukuk due at year end. Emirates NBD, the chief domestic creditor, has itself just floated $1 billion in 5-year dollar bonds after placing a smaller debut note in the yuan-denominated Hong Kong dim sum market. They were priced at 350 basis points over mid-swaps, reflecting an investment-grade rating and contrasting fortunes with Bahrain, where CDS rates are higher and an investment firm has just defaulted as violent demonstrations recur. Offshore banking operations have diverted to safer regional jurisdictions, and without oil the fiscal deficit on a bevy of social spending promises will hit 8 percent of GDP as the center tries to hold.

The Vienna Initiative’s Extended Strains
2012 April 10 by admin

Posted in: Europe
As official and private sector parties grapple with a specific formula to adapt the 2009 Vienna Initiative’s voluntary bar on bank cross-border “disorderly unwinding,” separate working groups have reported on NPL and Basel III-related complications still frustrating Emerging Europe operating and resolution frameworks. The bad loan average tops 10 percent, which is probably understated due to missing data and low estimates, and is worst in the Southeast and Hungary with its additional Swiss franc mortgage load. Payments have been adjusted without interest capitalization, and portfolio sale and collection outsourcing are infrequent. A half-dozen countries have revamped business and household bankruptcy procedures and introduced out-of-court settlement, but they are the exception. Collateral enforcement is cumbersome and lengthy, personal insolvency is unrecognized, loss provisions are not tax-deductible, prudential loan classification is suspect, and distressed-asset markets are lacking, according to regional experts. Banks hesitate to take action on their own fearing competitive ramifications, and confidentiality and secrecy custom and practice inhibit progress. The BIS standards will go into EU capital adequacy and liquidity directives that for Central and Eastern members must accommodate high foreign ownership stakes, shorter-term wholesale liabilities, and less-advanced money and bond markets. Tier-one equity is typically good with limited hybrid resort, and minority interests when consolidated at the group level increase the capital cushion. The analysis suggests foreign currency risk be explicitly included in set-asides, and that the small-firm impact of ratios must be weighed as an overriding factor. Liquid assets should be broadly defined, and parallel macro-prudential measures harmonized between home and host jurisdictions. The new European Banking Agency should assume a lead technical role, and the so-called counter-cyclical buffer could be modified in light of emerging market member differences. The supervisor “colleges” should be regularly convened under its auspices for information-sharing and rule alignment, the paper advises.

The research points out the difficulties’ lingering toll on economic growth, which is anemic outside “overheating” Turkey. There Citibank is shedding ownership in giant Akbank, a main exchange listing, to meet post-rescue US Federal Reserve demands. In Hungary, Austrian parents continue to report network shrinkage and losses, although Raffeisen spurns talk of the need for a capital increase with overall pre-tax profit. In their outlying realms headquarters executives have tried to convince investors the situation has bottomed, especially when compared to Spain’s severe periphery case, where the government may again inject cash to salvage the property-stuffed cajas. Russian state banks in turn may be on the acquisition march westwards toward troubled pockets after earlier buying their own Vienna outpost in the wake of a record $7 billion sovereign Eurobond placement. 1000 investors participated with a 30-year tranche available for an extended pan-European bet.

Private Equity’s Middling Middle Markets
2012 April 10 by admin

Posted in: General Emerging Markets
The Emerging Market Private Equity Association released 2011 fund-raising and deal-making totals showing continued BRIC and large vehicle concentration, with smaller destinations and capital size still overlooked. Its slice of the global new commitment pool was 15 percent at almost $40 billion, a multi-year high, with LPs seeking long-term exposure that may be confined through listed shares. Asia and specifically China has drawn three-fifths of the amount, with renimbi-denominated offerings the majority from dedicated sponsors prompting over $15 billion in allocation. India took in almost $3 billion and penetration at 0. 3 percent of GDP is double China’s. Brazil funds were all mobilized locally and represented near 20 percent of the aggregate at $7 billion. Each launch was $1 billion-plus, reflecting a preference for larger deals which extends to the broader universe, where average GP scope was twice 2010’s at $300 million while the number of entrants fell 20 percent.
Median investment size was $15 million, although Brazil’s was triple that figure. Russia/CIS and MENA were still stifled by regional crises with respective tallies of $135 million and $425 million. Sub-Sahara Africa’s total slipped from $1. 5 billion the previous year, with South Africa absorbing about one-third. The US and Europe remained the world leaders, with the former’s $95 billion in inflows far outpacing other developed markets. The trade group argues that Brazil and China are not at “saturation point” with unmet mid-market needs, and recalls the multi-regional push accompanying the $65 billion collected pre-crisis in 2008 that could reactivate over the medium-term.

Asia-sourcing and demand will continue to drive country and company stories in the coming months as the hard versus soft-landing debate coincides with Beijing’s party leadership transition. India may allow more favorable tax treatment for authorized venture capital operations in the latest budget, and Korea after spurning foreign involvement with controversies over bank and high-tech acquisitions following its late 1990s crash is revisiting the position so Seoul can claim world financial center status. Frontier backers like Franklin Templeton and Leopard Capital are promoting potential in Indochina and elsewhere, with Cambodia, which carries a B sovereign rating, joining Laos in stock exchange opening as an exit. This ignored swathe offers faster 5-plus percent GDP growth and Bangladesh, Sri Lanka and Vietnam are mid-size weightings on the MSCI benchmark index. To beckon foreign investors Dhaka has removed capital gains tax, and development lenders have a big portfolio of reconstruction projects for Sri Lanka’s war-torn north. Nepal and Papua New Guinea after civil strife feature energy and mining endowments and working equity markets that may pass private fancy.

The West Bank-Gaza’s Bleary Blockades
2012 April 4 by admin

Posted in: MENA
Despite a blip in Palestine Stock Exchange interest mainly from Gulf investors exiting Egypt, the World Bank’s annual West Bank and Gaza donor report underscored the severity of “fiscal crisis” with a recurring $1 billion deficit only half plugged by aid and commercial bank borrowing. The double-digit growth pace from a low base will not repeat as Israel’s access and trade restrictions remain intact, and business and regulatory reforms languish especially around land registration. The Palestinian Authority’s wage bill rose 5 percent in 2011 on greater security force employment. Tax and customs revenue collection were below target, as cumulative domestic debt reached over $1 billion, “at the limit” of available supply. Capacity may be further constrained by proposals to impose capital gains and savings account levies alongside ongoing efforts to overhaul payer exemption and reporting practices. The public pension system is currently insolvent, and steps to eliminate arrears and introduce “parametric changes” were missing in recent years. The civil service takes half of regular spending, with salaries absorbing twice the MENA average as a fraction of national income. Reconciliation between the respective governing parties in the twin territories as outlined by their leaders could reduce overlap, but administrative structures are unwieldy despite data and information processing strides, the document comments. The combined West-Bank Gaza economy will increase 7 percent in 2012, with per-capita incomes around the end-1990s level. Gaza construction spurted after blockade easing with first assistance-related and then private-sector equipment let in, while the West Bank’s pillars are defense and government. Unemployment continues at 25 percent, and after the initial wave, few Israeli investment restrictions have been loosened. Border closures and limits on dual-use items with potential military application extending to telecommunications are external obstacles, but dated and inconsistent internal company and transactions laws are also market-unfriendly.

The monetary authority which is assuming central bank functions is moving to impose Basel II standards, and non-performing loans are under 5 percent of the total. The formal payments network is unable to transfer Israeli shekels into Hamas-controlled Gaza which “strengthens unregulated money changers,” in the paper’s view. Electricity, water and sanitation are critical unmet infrastructure needs demanding $500 million in funding. Energy disruption has begun to affect Israel as well with the damage to Egypt’s gas pipeline contributing to $4 billion in economic losses, according to the Finance Ministry. Bond yields have risen on tensions with Iran as foreigners have dumped short-term Makam holdings now subject to tax. With 2 percent inflation, benchmark rates have stayed the course with the shekel flat against the dollar. Projected GDP growth is 3 percent, but the OECD recently criticized high public debt and poverty ratios which restrict industrial and labor maneuver.

The IDB’s Forked Road Determination
2012 April 4 by admin

Posted in: Latin America/Caribbean
The Inter-American Development Bank’s annual meeting report on “Forking Paths” matched participant sentiment as souring on stalwart destinations Brazil and Mexico was offset by clamor for infrequent capital market players including South America’s poorest economy Bolivia, which tapped underwriters for a $500 million sovereign bond not attempted for almost a century. The dichotomy elaborated 2011’s theme of One Region, Two Speeds, with average 3. 5 percent GDP growth a fluid forecast depending on European crisis and China slowdown outcomes. For commodities, metal more than agricultural prices are likely to fall, while the composition of capital inflows as heavily banking and portfolio-related is also worrisome given historical crash tendencies despite improved oversight and macro-prudential efforts. Fiscal space is constrained to address emergencies as structural deficits are higher than in 2008-09, and inflation-targeting regimes have become confused with central banks’ profusion of direct and indirect tools that have tightened policy since the original episode. Foreign reserve increases have translated into lower external debt ratios, but private sector balance sheets may be leveraged. European bank pullback is mitigated by the local retail base, but asset shedding to meet stricter minimum equity standards could have “significant effects. ” Often these institutions hold large positions in domestic debt markets and selloffs could suddenly raise borrowing costs at home and abroad, the survey warns.

Brazil continues to raise the currency war cry with extension of the 6 percent tax to 5-year fixed-income flows, as jaded investors seek proof through public pension and other reform initiatives that the strategy is not diversionary. Mexico has benefited from a contrasting hands-off stance on the peso that has been the year’s top performer and US rebound, but the election cycle has begun as foreign ownership is 40 percent of long-term bonds. A PRI presidential victory remains consensus opinion despite gaffes by standard-bearer Perez Nieto, but parliamentary control could again be fragmented. Argentina’s moves against oil giant YPF and to revamp the central bank law to allow greater reserve access have further alienated investors betting on a softer line after President Fernandez’s re-election and health scare. While regional sovereign ratings are flat overall, Bolivia is among a handful going to market with a positive outlook. Costa Rica, El Salvador, Guatemala and Trinidad and Tobago all plan external issues after a lengthy pause. New Guatemalan President Perez Molina must roll over an outstanding instrument due next year, and has emphasized pro-business and anti-crime approaches. Trinidad and Tobago’s Stabilization Fund has $4 billion on hand from energy proceeds, but a $500 million tap is in the works for diverging hydrocarbons and financial services ambitions.

Hungary’s Piquant Goulash Tasting
2012 March 30 by admin

Posted in: Europe
Hungarian debt and CDS yields again crept up as the EU followed through on its convergence aid suspension threat unless constitutional and policy changes are enacted by June. IMF backup loan talks stayed in limbo in advance of the organization’s spring meeting, and the OECD weighed in with a critical report highlighting recession and financial stress. It cited high sovereign rollover needs the next two years as “weak recovery” appears in the second half. Private sector debt reduction has hurt demand and investment is “subdued” due to uncertainty and the imposition of the “sizable bank tax and credit rationing. ” Gross fixed outlays are down 25 percent since 2008 and medium term prospects are “bleak” without productivity gains to outstrip the aging population. The December 2011 burden-sharing plan to ease household foreign currency exposure insufficiently targets distressed borrowers, the agency believes. The Szell Kalman fiscal regime proposed in the Orban Administration’s early days did not define detailed cuts in public spending at near half of GDP, with local government employment overcapacity a key area. State transport companies, as evidenced by the Malev airline’s recent bankruptcy, continue to sustain heavy budget losses. Energy and property tax increases should replace special crisis levies and social security savings are also available. The new economic stability act sets a responsibility rule for mid-decade, but the council to enforce it is too politically-charged and multiple exceptions may counter the original intent. Monetary policy as well is no longer a technical exercise with central bank officials subject to spontaneous dismissal and replacement contrary to standard Brussels norms. Bank and personal balance-sheet cleanup must occur simultaneously to revive the intermediation function, but may currently conflict with mortgage forgiveness outcomes which have favored early repayment and caused foreign-run groups to “freeze or downsize” networks.

Objective criteria for the program such as negative equity and loan-to-income qualifiers are lacking, and tax write-offs could assume a greater role in loan restructuring. Recapitalization may be needed and a new financial services transactions charge under consideration may hamper the effort. Half of marketable debt is in non-resident hands with shorter maturities, and forint depreciation has essentially absorbed the windfall from private pension transfer. Many sectors including law enforcement and mining receive privileged retirement benefits not subject to recent general curbs on early access. Loan contracts are prone to “unilateral modification” and the credit information systems are “undeveloped,” according to the update. Regulators should be equipped with more autonomy and power under coordination from the overall stability board. In a separate assessment of state-run health care, the examination cited the absence of private capital returns and delivery and quality factors, and called for better organization and fund use to stir the pot.

Nigeria’s Wistful World Bank Wallop
2012 March 30 by admin

Posted in: Africa
Nigerian stocks were unmoved from their modest upturn as Finance Minister Okonjo-Iweala, a former senior World Bank executive, was nominated by African representatives as a candidate for president of the organization as incumbent Robert Zoellick departs at end-June. She was grateful for the support but did not actively campaign as her team strives to regain momentum from the petroleum subsidy removal backlash. Under a companion adjustment, power rates will also rise, as anti-corruption crusader Nuhu Ribadu will lead a task force investigating oil revenue leakage. A landmark bill to split the commercial and regulatory functions of the National Petroleum Corporation and clarify the regime for foreign and private participation is a top economic agenda item to be passed this year, officials insist. Inflation has eased with less drastic subsidy reductions than originally proposed, and with buoyant world prices one-third of the budget deficit will be covered by the excess crude account. The naira has calmed in the 155 to the dollar range on $35 billion in international reserves. Institutional investors are creeping back to equities with big listed banks slowly disengaging from previous peril, but retail players, burned on margin loan overextension, remain shy. A congressional investigation into the stock market’s post-crisis collapse degenerated into a shouting match between the committee chair and enforcement head over alleged malfeasance in their respective capacities. The exchange chair at the time was forced to resign over fraud and mismanagement charges, and related criminal and civil cases are still in course. Politicians were widely accused of condoning and profiting from improper broker behavior and in a rare guilty plea a state governor who fled the country admitted to $250 million in illicit funds that may have come partially from such involvement to avoid a UK jury trial.

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

Korea’s Breakthrough Trade Trudges
2012 March 27 by admin

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

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

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

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

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

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Francophone Africa’s Stung Barracudas
2012 March 23 by admin

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

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

Mongolia’s Missed Mining Veins
2012 March 22 by admin

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

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

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

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

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

The Americas’ Summit Leaning Ledges
2012 March 19 by admin

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

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

Poor Countries’ Debt Sustainability Releases
2012 March 15 by admin

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

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