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Emerging Markets Weekly

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China's export growth slowed as the global financial crisis cut demand

Mon, Nov 17 2008, 10:47 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Brazil

Brazil's inflation expectations are rising as a ``sharp'' depreciation of the local currency fuels wholesale and industrial prices, according to Deutsche Bank AG. Deutsche economists cited recent government reports, including yesterday's weekly central bank survey of economists that showed inflation expectations for year-end 2009 rose to 5.20 percent, more than the 5.06 percent forecast last week.

Chile

Chile's central bank kept its benchmark interest rate unchanged, betting the ``drastic'' deterioration of the global economy will help tame the fastest inflation in 14 years. Policy makers, led by central bank President Jose De Gregorio, held the overnight rate at 8.25 percent, in line with forecasts from 19 of 25 economists in a Bloomberg survey.

Colombia

Peru and Colombia split from the Andean Community bloc to negotiate separate free-trade agreements with the European Union, Peruvian state news agency Andina reported. The countries decided to hold separate EU trade talks today after fellow Andean Community members Ecuador and Bolivia made little progress in negotiations, Andina said, citing Peru's Foreign Minister Jose Garcia Belaunde.

Ecuador

Standard & Poor's and Moody's on Friday downgraded Ecuador's credit ratings, saying the country's decision not to pay the coupon on its global 2012 bonds next week signals its unwillingness to keep servicing debt.
Ecuador President Rafael Correa's looming default on $510 million of bonds may hurt his biggest ally, Venezuela President Hugo Chavez, more than anyone else. Ecuador, hamstrung by a tumble in oil, its biggest export, said last week it will use a 30-day grace period to decide whether to make a $30 million interest payment that came due Nov. 15. Chavez's government owns structured notes tied to Ecuador's bonds that would force Venezuela to pay $800 million if Correa doesn't make the payment, according to estimates by Barclays Capital Inc.

Venezuela

Venezuela's benchmark oil price fell to its lowest since January 2007, adding pressure on an economy already suffering from slowing oil income. The Venezuela basket, an average of prices of oil and refined products exported by the South American country, dropped $6.61, or 13 percent, to $46.35 a barrel this week, the Ministry of Energy and Oil said on its Web site. The price has declined by more than half since the end of September. The country's 2009 budget is based on an average oil price of $60 a barrel and production of 3.6 million barrels a day next year.

AFRICA & MIDDLE EAST

Qatar

Qatar Investment Authority, the country's $60 billion sovereign wealth fund, plans to make more real estate acquisitions in 2009 as global prices decline and investors sell assets. ``We are looking for prime properties in major cities at distressed prices,'' said Navid Chamdia, the authority's head of real estate, in an interview at the Real Estate Investment World conference in Tokyo. ``We will continue to invest in attractive assets we are comfortable with.''

South Africa

Standard & Poor's cut its outlook for South African ratings to negative from stable on Tuesday on concerns about a large current account deficit and slowing world growth. The revision follows a similar move by Fitch on Monday as the impact of the credit crisis filters through to an emerging market sector that has already seen IMF bailouts for Hungary and Ukraine, with others set to follow. S&P said in a statement that South Africa's banks had limited exposure to the global financial crisis and should cope with an increase in bad debts as households struggle to cope with high interest rates and inflation. But the economy would feel the impact of a global slowdown. "The outlook revision reflects pressures on South Africa's balance of payments, which increase the risk of further currency depreciation and a sharper-than-anticipated correction in the current account deficit...," S&P analyst Remy Salters said. "The negative outlook reflects the increasing weight of short-term macroeconomic risks to our base case," Salters said. The ratings agency affirmed South Africa's "BBB+/A-2" foreign currency and "A+/A-1" local currency ratings.

ASIA

China

China's export growth slowed as the global financial crisis cut demand, adding to the risk of a slump in the world's fourth-largest economy. Exports climbed 19.2 percent in October from a year earlier after gaining 21.5 percent in September, the customs bureau said in a statement on its Web site. The trade surplus swelled to a record $35.2 billion as import growth weakened. China's economy, the biggest contributor to global growth, has slowed for five straight quarters, expanding 9 percent in the three months through September. The government has pledged 4 trillion yuan ($586 billion) of spending to sustain growth through 2010 and switched to a ``relatively loose'' monetary policy.
China's retail sales rose 22 percent, close to the fastest pace in nine years, signaling that domestic demand may help the fourth-biggest economy through the worst financial crisis since the Great Depression. Sales climbed to 1.008 trillion yuan ($148 billion) in October, the statistics bureau said, after gaining 23.2 percent in September from a year earlier.
China's inflation cooled to the slowest pace in 17 months, making further interest-rate cuts more likely as the world's fourth-biggest economy loses steam. Consumer prices rose 4 percent in October from a year earlier, the statistics bureau said today, after gaining 4.6 percent in September. Food rose 8.5 percent, the smallest increase since May 2007.

Indonesia

The Indonesian rupiah will fall to its lowest since 1998 in the next three months as a decline in foreign-exchange reserves limits central bank intervention, according to Credit Suisse Group AG. The rupiah, Asia's worstperforming currency in the past month, will slide 5.6 percent to 12,500 per dollar, as exports slump, Switzerland's second-biggest bank said in a report first published on Nov. 4 and also mentioned in a note to clients.
Indonesia's economy grew at the slowest pace in six quarters as declining prices of palm oil, rubber and coal reduced the value of exports. Southeast Asia's largest economy expanded 6.1 percent in the third quarter from a year earlier, after growing 6.4 percent in the preceding three months, the Central Statistics Bureau said in Jakarta.

Malaysia

Malaysia's industrial production fell for the first time in 18 months in September as a global economic slump hurt demand for manufactured goods. Production at factories, utilities and mines dropped 1.7 percent from a year earlier after a revised 1.2 percent gain in August, the Putrajaya-based Statistics Department said in a statement. Economists expected a 0.6 percent increase. Malaysia's government last week slashed its growth forecast for 2009 to an eight-year low of 3.5 percent and predicted a decline in exports next year as the worst financial crisis since the Great Depression pushes economies from Singapore to New Zealand into recession.

Pakistan

Standard & Poor's cut its sovereign ratings on Pakistan further into "junk" territory on Friday, highlighting the country's difficulty in raising the money that it badly needs to avoid defaulting on its debt obligations. It marks S&P's second downgrade of Pakistan's ratings in as many months. Friday's downgrade comes even after the country's top economic adviser said late on Thursday it expected the International Monetary Fund (IMF) and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million. To debt investors Pakistan's most pressing obligation are $500 million in bonds maturing in February 2009. The risk of default on that and other obligations have sent the cost of insurance in Pakistani debt soaring this year.
The Pakistani rupee firmed slightly on Monday, following the government's agreement with the International Monetary Fund (IMF) for a $7.6 billion emergency loan, dealers said. The rupee was quoted at 79.90/80.00 to the dollar at 1:21 p.m. (0821 GMT), having opened little changed from Saturday's close of 80.15/25. Dealers said they expected the rupee to stabilise, at least in the short term, following the IMF accord, having already lost 23 percent against the dollar this year as a balance of payments crisis developed. "The rupee should be seen stabilising in the short term on improvement in sentiment," said a currency dealer. The IMF said on Saturday its executive board is expected to meet shortly on the 23-month standby credit after IMF and Pakistan agreed on a reform programme.

EMERGING EUROPE & CIS

Belarus

Belarus's central bank will scrap a recommendation limiting commercial banks' interest rates to no more than three percentage points above its key refinancing rate as of next year, the bank said on Tuesday. "This decision was taken so that banks could react to the changing situation faster ... The situation on financial markets is changing very quickly at the moment," Anatoly Drozdov, the central bank's chief spokesman, told Reuters. Although this had been only a recommendation, commercial banks never set interest rates above the limit. On Monday, the central bank raised its refinancing rate to 11 percent from 10.75 percent. Ex-Soviet Belarus is currently seeking an International Monetary Fund loan of about $2 billion as a "precautionary measure" against the impact of the global financial crisis.

Bosnia

Bosnia will discuss a possible stand-by loan with the IMF as a cushion against further economic troubles, one of the country's three finance ministers said on Tuesday. "In the talks with the IMF, they will help us in focusing on resources that are needed for the economy if we need it," Vjekoslav Bevanda, finance minister of the Muslim- Croat half of Bosnia, said in an interview in Vienna where he was attending an economic forum. The International Monetary Fund (IMF) mission will arrive on Wednesday on a one-week regular staff visit to Bosnia and talk to officials in the central government and the country's two regions, the Muslim-Croat federation and the Serb Republic. Bosnia was divided after its 1992-95 war into the two regions which are linked through a central government with limited powers.

Hungary

Hungary is ready to implement new spending cuts if they are necessary to defend its plan to slash the budget deficit and adopt the euro as soon as possible, Economy Minister Gordon Bajnai said on Thursday. As part of the $25.1 billion agreement with the IMF and the European Union, the Socialist government agreed to cut public sector spending by 320 billion forints ($1.52 billion), or over 1 percent of gross domestic product. Hungary launched an economic stimulus package Thursday to lift it out of recession but tight budget controls mean there will be no new spending. Bajnai said the spending cuts, affecting public sector wages and pensions, would not be reversed and could be followed by more if necessary. "We cannot let the grass grow back," he told Reuters in an interview. "We have to do what is necessary. If the situation is more severe (than currently anticipated), we need to go further," he said. The government believed, however, that the spending cuts together with the IMF package would be enough to stabilise the economy and protect the Hungarian currency, the forint, against capital outflows. "We believe we have produced quite a conservative plan... and (with the IMF loan) we have built a huge barrier against speculating on Hungary's failure," he said.

Kazakhstan

Kazakhstan's gross domestic product growth slowed to 3.9 percent year-on-year in January-September 2008 from 9.7 percent in the same period of 2007, the state statistics agency said on Friday. The figure was essentially in line with a previous government estimate of 4.0 percent for the period. The Central Asian state's government, which has blamed the slowdown on the global credit crunch, sees full-year GDP growth at 5.0 percent, half of the average rate recorded since 2000 thanks to booming prices for its exports, oil and metals.

Latvia

Fitch Ratings has downgraded Latvia-based Parex Banka's (Parex) Long-term Issuer Default Rating (IDR) to 'BB' from 'BB+' and Individual rating to 'F' from 'C/D'. In addition, Fitch has placed the Long-term IDR on Rating Watch Negative. The senior unsecured ratings are also downgraded to 'BB' and put on Rating Watch Negative. Fitch has affirmed the bank's Short-term IDR at 'B', Support rating at '3' and Support Rating Floor at 'BB'. The rating action follows the nationalisation of the bank (51% of total shares) after the bank's application for support from the government as a result of resident and non-resident deposit withdrawals between Oct. 1st and Nov. 7th that amounted to 12% of total customer deposits. It also follows the downgrade of the sovereign ratings of Latvia today to Long-term foreign IDR 'BBB-' (BBB minus) from 'BBB', Long-term local currency IDR 'BBB' from 'BBB+' and Country Ceiling to 'A-' (A minus) from 'A'. The ratings are now at the support rating floor and reflect the support Parex received from the government in the form of liquidity injection and guarantee of EUR775 million of syndication loans that are coming due in 2009 (EUR275 million in February 2009 and EUR500 million in June 2009). The government is also looking to sell the bank to a strategic investor; however, Fitch believes it will be difficult given the current global operating environment. The Individual rating reflects Fitch's opinion that if the bank had not received support from the government it would have defaulted.

Romania

Romania's centrist Liberal government on Wednesday unveiled measures meant to prop up economic growth but further loosen the fiscal policy it would pursue if it wins a Nov. 30 parliamentary election. "We will continue to cut taxes," Prime Minister Calin Tariceanu, whose party ranks third in opinion polls with 17-18 percent, told reporters after a cabinet meeting. The plan includes slashing social insurance contributions by 10 percentage points over a four-year horizon. It also envisages a 5 percent discount in income and profit tax for households and corporations that pay dues in time and a 1,000 euro payment for every jobless person a company hires. State aid would be up to 50 million euros for any investment of over 100 million euros that creates 500 jobs. For a smaller investment, aid could be up to 28 million euros. The plan includes subsidies for farming and social housing and envisages the creation of a state institution to monitor implementation of projects to absorb European Union funds.
Romania said it has endorsed a 250-million euro ($312.9 million) capital hike of the wholly state-owned CEC Bank to support small and medium-sized enterprises and farm producers. The hike is part of a 10 billion euro package of government measures to help the Romanian economy deal with the impact of the global financial crisis, Prime Minister Calin Popescu Tariceanu told journalists on Wednesday evening.

Serbia

The International Monetary Fund extended a $516 million lifeline to Serbia on Friday, but officials said the economy would slow to less half this year's clip in 2009 on the back of weaker exports and low savings. Serbia argues it is in a different situation from Ukraine and Hungary, rescued by the IMF last month, but its dinar currency and foreign exchange reserves have slumped as the economic crisis gathered speed and investors fled risky emerging markets. In response to the stand-by loan, which Belgrade says it will tap only if necessary, Serbia has pledged to slash its 2009 budget spending to better prepare itself to weather the global economic storm -- reforms the IMF said were vital.

Turkey

Turkey's current-account deficit narrowed in September for the first time in 16 months as a weaker lira helped push up exports and ease import growth. The deficit contracted to $900 million from $2.3 billion in September 2007, the central bank in Ankara said on its Web site.
Standard & Poor's Ratings Services said that it revised its outlook on the Republic of Turkey to negative from stable. Standard & Poor's also said that it affirmed its 'BB-/B' foreign currency and 'BB/B' local currency sovereign credit ratings and its 'BB+' transfer and convertibility assessment on the republic. In conjunction with the rating action on the sovereign, Standard & Poor's also revised its outlook on Export Credit Bank of Turkey to negative from stable and affirmed its 'BB-/B' foreign currency credit rating on the bank. "The outlook revision follows a shift in the balance of risks to the downside as external financing conditions remain difficult," explained Standard & Poor's credit analyst David T. Beers. "Although we expect Turkey's current account to narrow in 2009 from a projected deficit of 7.3% of GDP in 2008, 2009 gross external financing needs will exceed 140% of 2009 current account receipts plus usable international reserves. This is one of the higher ratios among emerging market countries." The bulk of this external funding requirement stems from banks and corporations.
The International Monetary Fund had not reached an agreement for a new loan deal to help Turkey weather a global credit crisis, but a package was close, Managing Director Dominique Strauss-Kahn said on Saturday. Strauss-Kahn told a press conference after a G20 summit of leaders here that he had met with the Turkish Prime Minister Tayyip Erdogan on Friday and emphasized that the country's situation required attention. "We still have some disagreement on the size of their adjustment, the consequences of the adjustment which is needed by the Turkish economy, and following that, the size of the package of the program that the Fund may finance," he said. "But I am confident that rather rapidly, it will be possible to find an agreement to stabilize the situation in Turkey. Turkey is a great economy with great prospects."

INDUSTRIAL COUNTRIES

Iceland

Iceland said on Sunday it had reached a deal with several European Union states on how to repay thousands of foreign savers with money in frozen Icelandic accounts, potentially unlocking billions of dollars in aid. Conflicts over the accounts between Iceland, which is not a member of the EU, and EU states Britain and the Netherlands have been delaying an International Monetary Fund-led package worth as much as $6 billion for the crisis-hit country. "What this means here and now is that the IMF will now discuss our case on Wednesday and, following that, we expect that our application will lead to release of the funds we have negotiated with them," Prime Minister Geir Haarde said according to a government website. "According to the agreed guidelines, the government of Iceland will cover deposits of insured depositors in the Icesave accounts in accordance with EEA (European Economic Area) law," the Icelandic government said in a statement, saying this "common understanding" would form the basis for more talks.

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Published on  Mon, Nov 17 2008, 10:47 GMT

Moody's Investors Service on Tuesday placed Jamaica's ratings on review for downgrade

Mon, Nov 10 2008, 08:16 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

EMERGING MARKETS

Fitch cut ratings for four Eastern European countries, including cutting Romania to below investment-grade. It also lowered its outlook on South Korea, Mexico, Russia and South Africa to negative from stable, while that of Chile and Malaysia were cut to stable from positive. The actions are part of a review of 17 big investment-grade emerging markets, which resulted in four downgrades and seven outlook revisions, it said on Monday. Emerging markets with current account deficits and those reliant on short-term external funding have been among the worst hit by the crisis that has already led the International Monetary Fund to provide loans to Hungary and Ukraine. The widespread risk aversion has led foreign investors to flee markets such as South Korea in droves, aggravating the liquidity crunch faced by these countries.

LATIN AMERICA

Fitch Ratings has revised Mexico's Rating Outlook to Negative from Stable, and Chile's Rating Outlook to Stable from Positive, for both their Long-term foreign and local currency Issuer Default Ratings (IDRs). This follows the conclusion by Fitch of a global review of the sovereign ratings of 17 major investment-grade emerging market economies. At the same time, Fitch has affirmed the local and foreign currency IDRs and Stable Rating Outlooks for Brazil and Peru. Investment-grade Latin sovereigns have seen increased financial pressures in recent weeks, as illustrated by volatile market moves in equities, credit and currencies. "Global recession, falling commodity prices and tighter external liquidity conditions are expected to buffet all the investment-grade Latin sovereigns to varying degree," said Shelly Shetty, Senior Director in Fitch's sovereign group. At this juncture, Fitch believes that Brazil's strong external liquidity and Peru's relatively low external financing needs provide sufficient cushion to sustain current rating levels and Stable Outlooks.

Argentina

Moody's has released its annual report on Argentina. The report notes that Argentina's B3 rating is highly susceptible to default risk due to even one major shock. In a related comment, Moody's notes that Argentina's dependence on commodity exports makes it vulnerable to external shocks. The report also notes that Argentina's development level is higher than most of its ratings peers (that is not a compliment), but that Argentina's development has been tempered by institutional weakness (also not a compliment). The report acknowledges progress on "most headline fiscal and debt metrics" but even that praise is half-hearted, as fiscal policy is cited as being pro-cyclical and lacking in a cushion for a downturn.
Argentina's lower house voted to support President Cristina Fernandez de Kirchner's plan to nationalize about $26 billion in private pensions, a proposal that raised concern of a default. Legislators voted 162 to 75 to back the plan after a session that began yesterday afternoon and ended after midnight. The proposal will be sent to two senate committees for consideration next week. A full senate vote on the measure may take place Nov. 20, the senate's Work and Social Security Committee said.

Brazil

Banco Itau Holding Financeira SA agreed to acquire Uniao de Bancos Brasileiros SA in a stock transaction, creating Brazil's biggest bank as fallout from global market turmoil spread to Latin America's largest economy. The combination will create a bank with 575 billion reais ($261.4 billion) in assets, the companies said in an emailed statement today. The accord follows 15 months of talks between Itau, the second-largest non-government bank, and Unibanco, the third-largest. The banks called the deal a merger.
Foreign investors pulled money from Brazil's stock exchange for a fifth straight month in October, the longest streak in four years, on concern the seizure in credit markets will halt growth and crimp demand for the nation's commodity exports. Investors from abroad sold 4.69 billion reais ($2.23 billion) more shares than they bought in Latin America's largest stock market last month, BM&FBovespa SA said on its Web site. That brings the outflow this year to about 23 billion reais. The 66-stock Bovespa Index, which gets about half its value from producers of energy and raw materials, lost a quarter of its value in October as the financial crisis deepened and commodity prices had their biggest monthly drop in 52 years.

Chile

Chile's annual inflation rate rose to a 14-year high in October, led by rising costs for food and transportation, increasing pressure on policy makers to raise interest rates this month. Consumer prices jumped 9.9 percent last month from the same month a year earlier, the fastest pace since September 1994, the National Statistics Institute said.

Ecuador

Ecuadorean consumer prices rose 0.03 percent in October from the previous month, the smallest increase since May 2007. Prices climbed 9.85 percent last month from a year earlier, Byron Villacis, director of the South American country's National Statistics and Census Institute, told reporters in Quito.

Jamaica

Moody's Investors Service on Tuesday placed Jamaica's ratings on review for downgrade as the ongoing financial crisis is exerting significant pressure on the country's external and fiscal positions. The "B1" foreign-currency and the "Ba2" local-currency government bond ratings, as well as the "B2" foreign-currency bank deposit ceiling, were all placed under review. "Despite the government's adequate policy response and continued strong commitment to servicing its obligations, the challenges imposed by the global financial crisis and economic slowdown are simply too severe for Jamaica to avoid an increase in credit risk," analyst Alessandra Alecci said in a note. "The government's precarious debt dynamics and onerous debt burden, which exceeds 125 percent of GDP, leave very little room to absorb shocks of this magnitude."
Standard & Poor's said on Tuesday it is likely to downgrade Jamaica's credit ratings if external pressures and an expected economic downturn add to the country's fragile fiscal position. S&P revised the outlook on Jamaica's "B" sovereign credit ratings to negative from stable, warning that deteriorating global financial conditions are making it more difficult for the government to meet its external funding needs, despite high primary fiscal surpluses

Mexico

Banco Santander reduced its 2009 economic growth forecast for Mexico to 0.6 percent from 1.6 percent, predicting a contraction in the manufacturing industry and a slowdown in services, investment and consumer activity. ``The economic deceleration, as a result of the U.S. recession, will be sharper than we initially expected,'' Delia Paredes, senior economist for Santander in Mexico City, said in a report.

Peru

Peruvian inflation accelerated 0.61 percent in October on electricity rates, transport and food prices, the government said. Consumer prices last month rose from 0.57 percent in September, the national statistics agency said.

Puerto Rico

With election fraud charges hanging over his head, Puerto Rico Gov. Anibal Acevedo Vila was beaten soundly in his re-election bid on Tuesday. The 46-old-governor from the pro-commonwealth Popular Democratic Party, who was indicted this year on campaign fund-raising charges, lost the leadership of the U.S. Caribbean territory to Luis Fortuno of the pro-statehood New Progressive Party. Fortuno opened up a comfortable 10-point lead in early returns and held it until Acevedo Vila conceded the race four hours after polls closed. A 10-point margin is a landslide in Puerto Rico, where the electorate is evenly split between people who favor the island's current commonwealth status and those who want full U.S. statehood.

AFRICA & MIDDLE EAST

Middle Eastern economies reliant on Arab Gulf capital inflows for booming economic growth are seeing a drop in investment as the global financial crisis has curtailed investors' appetite for the region, bankers and analysts said on Tuesday. Cash-rich Arab Gulf countries had poured billions of dollars in Egypt, Jordan, Lebanon and Syria as they invested in mega-real estate projects, equities and energy and telecoms companies beyond their domestic markets. "There are visible signs that intra-regional capital flows are tapering off, which will put a dampener on the accelerating momentum that we've been witnessing over the past several years," said Omar Masri, director of the Edgo Group, a regional oil & gas company. Masri echoed worries across the region about a drop in Gulf capital inflows that had contributed to the region's economic transformation as countries adopted investment friendly policies to attract projects to ease unemployment and rising poverty. "These economies have become more susceptible to regional financial turmoil given their growing dependency on Gulf investment. Such countries have high birth rates and must maintain a robust GDP growth rate of at least 5-6 percent just to absorb the new entrants into the labour force," Masri added. The IMF's latest report projected that growth could decelerate to 6 percent in 2009 from 6.5 percent in 2008 in emerging markets countries such as Egypt, Tunisia, Jordan, Morocco and Lebanon as a result of the global slowdown.

Egypt

Egypt, the Arab world's most populous country, will attract Gulf investments fleeing the crisis in Western economies, Investment Minister Mahmoud Mohieldin said. ``We will see that one of the good sides about the global financial crisis is that there will be a reduction in Arab investment in Europe and the U.S.,'' Mohieldin said at the annual conference of the country's ruling National Democratic Party today. ``This is not a guess, but based on meetings we had in Arab countries.''

ASIA

China

China should invest more heavily in overseas shares rather than provide cheap financing for U.S. and European governments to acquire stocks at low valuations, said Li Daokui, head of economic research at Tsinghua University. ``It doesn't make good business sense to buy rising U.S. Treasuries and a strong dollar when you can buy stocks cheaply,'' said Li, who in July attended a meeting called by President Hu Jintao to discuss the economy. The U.S. and U.K. governments will be the primary beneficiaries of low-cost funding, he said at a finance forum in Beijing.
China, the biggest contributor to world growth, unveiled a 4 trillion yuan ($586 billion) plan to sustain its economy, spurring gains in stocks, metals and oil. China's cabinet pledged ``fast and heavy-handed investment'' in housing and infrastructure through 2010 and a ``relatively loose'' monetary policy, according to a State Council statement. Copper jumped more than 7 percent and Asian stocks rallied on optimism the package will limit the depth of a looming global recession and encourage coordinated efforts to revive growth. President Hu Jintao will join crisis talks with world leaders this weekend in Washington, where President-elect Barack Obama has pledged to pass stimulus measures. ``This plan is, by all measures, too large to be ignored,'' said Kevin Lai, an economist at Daiwa Institute of Research in Hong Kong. China may ``help the rest of the world by creating more demand for foreign goods and services.'' China's CSI 300 Index of shares jumped 5.2 percent as of 1:01 p.m. in Shanghai.

Indonesia

Indonesia's central bank refrained from reducing its benchmark interest rate, aiming to stem an exodus of foreign investors that pushed the rupiah to its biggest drop in a decade. Bank Indonesia kept its key rate unchanged at 9.5 percent, after six increases since May, it said in a statement in Jakarta.

Malaysia

Malaysia's export growth unexpectedly accelerated in September, as rising commodities shipments to Asian markets countered declining electronics sales to the U.S. Overseas sales increased 15.1 percent from a year earlier to 62.3 billion ringgit ($17.7 billion) after gaining a revised 10.7 percent in August, the trade ministry said in a statement in Kuala Lumpur.

Philippines

The Philippine economy will probably expand 4 percent this year and next, helped by farm output and government spending, central bank Managing Director Cyd Tuano-Amador said in a briefing today in Manila. The Philippine central bank said it remains on guard against inflation and has the ``latitude'' to keep its monetary policy settings unchanged, Amador said.

South Korea

The Bank of Korea lowered interest rates for the third time in four weeks and signalled it's ready to act again to prevent the economy from sinking into the first recession in a decade. The nation's shares and currency rose. The bank reduced the key rate by 25 basis points to 4 percent, the lowest since 2006, adding to 100 basis points of cuts in October. Policy makers are focused on keeping ``the economy from weakening too much,'' Governor Lee Seong Tae said, adding he's prepared to ``take bigger actions if necessary.''
South Korean treasury bond futures extended their sharp losses for a second session on Monday, depressed by a large government bond auction and Fitch's warning of a possible sovereign rating cut. The December futures contract dropped as much as 67 ticks before ending 64 ticks lower at 108.20, adding to Friday's 63-tick decline. The finance ministry sold an unusually large amount of 5-year treasury bonds totalling 2.25 trillion won at an average rate of 5.10 percent in an auction on Monday. Investors stayed away from government bonds, with fears of more financial turmoil arising after Fitch Ratings put South Korea's rating outlook on its 'negative' watch list.

EMERGING EUROPE & CIS

Austria's move to help its banks with state funds is less aimed at shoring up troubled lenders and more at boosting credit and growth in emerging Europe, where its banks dominate and it could lose heavily from a downturn. The Austrian financial sector's lucrative grip on the former Communist part of Europe, which contributed 42 percent of its profits last year, has turned into a risk. It has even made it relatively more expensive for the government to borrow and has driven up costs to insure against its default in recent months. Austrian banks are owed $290 billion by borrowers from Albania to Russia. Its exposure is much higher than that of Italy, Germany and France, and almost on par with what Spain has lent to Latin America, according to the Bank for International Settlements. Relative to the size of the Alpine country, the exposure -- roughly equal to its gross domestic product -- is daunting. In other words: should the recent central European hiccup turn into a crisis of Asian or Latin American proportions, with currencies devaluing and debtors defaulting en masse, Austria would be in trouble, and more so than any other western country. This fact has shaped how the Austrian government is using its 100 billion euro ($129 billion) banking package. The finance ministry last week agreed to boost the capital of Erste Group Bank by 2.7 billion euros, even though the bank, emerging Europe's third-biggest lender, is well-capitalised and funded. The state money came cheaper and with fewer strings attached than similar deals in Germany or Belgium. There are few rules on how to use the capital -- just enough to allow the government to present the measure as boosting domestic credit. In reality, most of the capital is going to underpin lending in countries including Romania, where Erste owns the biggest bank, or Hungary, where it is number 6. "That this is about providing credit to Austrian companies is just a pretense," said Matthias Siller, who manages emerging market funds at Baring Asset Management. "This move is a clear commitment to eastern Europe. "But this has nothing to do with charity. Those (Austrian) banks are system-relevant banks in central and Eastern Europe, and if they had to withdraw capital from there, this would set off a landslide," he said.

Baltic States

Moody's cut its credit rating for the Baltic state of Latvia on Friday and reduced its outlooks on neighbours Lithuania and Estonia to negative from stable, citing an economic slump and possible trouble for banks. Latvia's government said it had already approved plans to help local banks if needed while the central bank said the Moody's move showed present plans for a budget deficit next year were unacceptable. Estonia's central bank said problems cited by Moody's showed the need for quick adoption of the euro. Moody's downgraded the foreign and local currency ratings of Latvia to A3 from A2. It made the move just before news Latvian gross domestic product sank 4.2 percent in the fourth quarter. Markets worry that Latvia, Estonia and Lithuania, with high current account deficits and consumer debts, could be vulnerable to the kind of crisis which has forced Hungary to turn to the IMF, though Baltic leaders have played down this probability.

Bulgaria

Fitch Ratings has downgraded the sovereign rating of Bulgaria. The downgrade reflects the increasing risk of a recession in response to a marked decline in external financing flows, which will necessitate a sharp contraction in domestic demand to rein in the current account deficit. However, given the strong sovereign balance sheet - large fiscal reserves mean that government net financial liabilities are virtually zero - and the broad-based commitment to the currency board arrangement (CBA), Fitch believes the risk of recession broadening into a deeper economic and financial crisis over the medium-term is limited and consistent with a Stable Outlook.

Hungary

Moody's Investors Service has announced it downgraded the foreign currency deposit ratings of eight Hungarian banks, including a government related issuer. The foreign currency deposit ratings were downgraded to A3/Prime-2 from A2/Prime-1 and the outlook was changed to negative from stable on the long-term foreign currency deposit rating for the following banks: OTP Bank, OTP Mortgage Bank, CIB Bank, Kereskedelmi & Hitel Bank, MKB Bank, Erste Bank Hungary, Budapest Bank and MFB Hungarian Development Bank. On November 7, 2008 Moody's downgraded Hungary's local and foreign currency government bond ratings to A3, outlook negative, from A2, outlook stable, and the country's foreign currency bank deposit ceiling to A3, outlook negative, from A2, outlook stable. Hungary's Aa1 country ceiling for foreign currency bonds, the Aaa local currency deposit ceiling and the Aaa local currency debt ceiling were not affected by this rating action.
Following the conclusion of its global review of the sovereign ratings of 17 major investment-grade 'emerging market' economies, Fitch Ratings has downgraded the sovereign rating of Hungary. The downgrade reflects the severity of the recession and post-crisis correction to macroeconomic imbalances and associated risks to the public finances and from foreign currency mismatches in the private sector. However, the EUR20bn IMF-led package of support has largely removed external financing and liquidity risks, supporting Fitch's Stable Outlook.

Kazakhstan

Kazakhstan said on Monday it expected a host of state stabilisation measures to start taking effect later this month and urged the government to act fast to combat the affects of the global financial crisis. Stung by credit ratings downgrades and falling oil prices, Central Asia's biggest economy has been struggling to ease strains from the global financial storm, announcing a number of stabilisation measures and promising banks additional liquidity. Prime Minister Karim Masimov, addressing a cabinet meeting, said the government planned to finalise its anticrisis package by Nov. 25 to "defuse clots" in the financial sector. "I expect to see quite a significant shift over the next two weeks. We have to act very fast," Masimov said. "I think over the next two weeks we will be able to defuse clots related to the lack of credit in the economy, settle problem loans through the distressed asset fund, boost banks' capital and pour additional liquidity into the economy." Last month, the government said it would inject $5 billion into the country's four largest banks to stave off potential loan losses stemming from the crisis. Under the plan, the banks are due to sell stakes to the government in a partial nationalisation deal that has raised concerns among some equity investors whose stakes are to be diluted in the transaction. Masimov said the government had hired Credit Suisse and JPMorgan to act as consultants on recapitalisation issues, and Citibank to help it with the state distressed asset fund. Overall, the government plans to inject a total of $15 billion this year into the economy. Despite the measures, economic weakness continues to persist. The government expects economic growth to slow to 5.3-5.5 percent this year after averaging about 10 percent since 2000. The International Monetary fund sees growth at 4.5 percent. Echoing some of these worries, Fitch cut its sovereign rating on Kazakhstan on Monday by one notch to BBB-, the lowest investment-grade level.

Macedonia

Fitch Ratings on Tuesday revised Macedonia's credit outlook to stable from positive on the widening of the current account deficit and political setbacks that could make the prospect of the country's accession to the European Union more difficult. The agency affirmed Macedonia's foreign currency rating at "BB+", the shortterm foreign currency rating at "B" and the country ceiling at "BBB-". Fitch's main concern is the rapid widening in the current account deficit, which it projects to reach around 12 percent of GDP this year, compared with just 3 percent in 2007 and a virtual balance in 2006, Fitch said in a statement. In terms of political stability, the handling of national elections this year -- effectively a major EU benchmark for Macedonia -- was poor. Macedonia also experienced a series of political shocks this year. In April, its application for NATO membership was rejected due to the Greek government's objection to the use of Macedonia as the country's name.

Romania

Romania's leu fell over 1 percent against the euro in early trade on Monday, after ratings agency Fitch cut Romania's credit rating to "junk" status, dealers said. The ratings agency's move comes nearly two weeks after a Standard & Poor's downgrade turned Romania into the only European Union member with a non-investment grade credit rating. "The leu is falling because of the Fitch downgrade, but based on the S&P experience, regional sentiment will be more important in the near future and if the emerging markets currencies firm, the leu will relate to them," said one dealer with a local bank. At 0730 GMT, the leu traded at 3.7441/80 per euro, compared with a Friday close of 3.713 and an intra-day low of 3.7533.

Russia

Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble. Just 10 years ago, Russia let the ruble fall as much as 71 percent as the government defaulted on $40 billion of debt and world stock and bond markets collapsed. Now, the combination of a 61 percent drop in oil prices from their peak in July, slowing economic growth and increasing investor concern about emerging markets are draining Russia's foreign reserves, which fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31. Russia, which uses reserves to curb swings in the ruble that hurt the competitiveness of exports, may find the resistance futile after the currency fell 13 percent against the dollar since Aug. 1. The central bank sold a record $40 billion in October, according to Moscowbased Trust Investment Bank. Troika Dialog, the country's oldest investment bank, said the currency may slump as much as 30 percent in the event of a devaluation.
Russia's inflation rate fell to 14.2 percent, the lowest in seven months, as grain, legumes and gasoline prices decreased. The rate dropped from 15 percent in September, the Moscow- based Federal Statistics Service said in an e-mailed statement. Prices gained 0.9 percent in the month, after rising 0.8 percent in September.

Serbia

Serbia said on Tuesday it would cut its 2009 budget to get a safety line from the IMF and Ukraine appealed to the fund for approval of a $16.5 billion rescue plan to weather the global financial storm. They were the latest central and eastern European states to look to the International Monetary Fund for help as the European Bank for Reconstruction and Development warned a number of countries in the region were sure to hit recession. Analysts say that Serbia, a small but open economy heavily reliant on external borrowing and investment, is not as exposed to the global crisis as Iceland, Ukraine or Hungary, hit by market turmoil in recent weeks. Yet Serbia's dinar was the biggest loser in an investor flight from the emerging European assets last month that has raised fears that economies in the Balkans and on the Baltic Sea could hit trouble as the crisis filters through. "We are still in talks with the International Monetary Fund about the (2009) budget," Deputy Prime Minister Mladjan Dinkic said. "Our position is to have the precautionary programme and not to draw the money unless it is really necessary." A top government official said later in the day the IMF was demanding that Belgrade cut its fiscal gap to 1.5 percent of GDP from 2.7 percent this year by freezing real wages and pensions. Both spoke a day after the Finance Ministry said Serbia was negotiating a stand-by deal with the IMF, with analysts estimating the country's needs up to two billion euros in a worst case scenario if global financial turmoil triggered panic.

Turkey

A new loan deal between Turkey and the International Monetary Fund is in doubt because of a disagreement over the level of spending by municipalities, Deputy Prime Minister Nazim Ekren said on Saturday. The IMF and Turkey are expected to hold further talks during a summit of G20 industrial and developing nations in Washington on Nov. 15. These will cover details of Turkey's follow-up deal with the Fund after a previous agreement expired earlier this year, Ekren told reporters. "It is not very easy to say whether there will be an agreement with the IMF or not," Ekren said. Ekren, who supervises economic coordination, also said Turkey had sufficient foreign exchange reserves for its banks to roll over their debt. "It looks that the banks can roll over 50- 65 percent of their debt. There is no possibility that we fail to overcome this with the level of foreign exchange we have," Ekren said. Turkey's $10 billion IMF stand-by deal expired in May and Prime Minister Tayyip Erdogan has said the government does not want to sign a new loan accord if the IMF programme exerted excessive constraints on budget spending, taxes, economic growth and public investments.

Ukraine

Ukrainian Prime Minister Yulia Tymoshenko has warned steel industry bosses and other business leaders that mass sackings will prompt the government to renationalize private enterprises, government sources have told MB. Tymoshenko sent the message to business leaders during a television broadcast on the Inter TV channel, according to the Ukrainian government website.
Ukraine must keep to the budget levels agreed with the International Monetary Fund in order to receive the next tranches of a $16.5 billion loan, the local IMF representative told a television channel late on Thursday. Balazs Horvath also told news channel 5 that the tranches may be released to Ukraine every quarter. The IMF said late on Wednesday when it approved the loan and gave the first tranche of $4.5 billion, that Ukraine was allowed a budget deficit of 1 percent to GDP this year and must have a balanced budget next year. It also required greater currency policy flexibility. "In order to release the next tranche, for us the most important thing will be the budget deficit," Horvath said. "If the deficit is significantly higher than the level we agreed, this will become a problem and the IMF could take a decision that Ukraine cannot receive the next tranche until this problem is solved," he said.
Ukraine is cutting back its dollar sales to support the hryvnia on the market as the currency becomes more stable, central bank said. The Natsionalnyi Bank Ukrainy is reducing the amount of dollars it sells on the currency market to support the hryvnia ``from day to day,'' Petro Poroshenko, head of the bank's council, told reporters in Kiev.

INDUSTRIAL COUNTRIES

Iceland

Icelandic Prime Minister Geir Haarde said on Friday the country's banking system was functioning again after all but collapsing last month. Haarde told a news conference a group of lenders were still finalising the details of a loan package that will include a $200 million Polish contribution announced earlier on Friday. Commerce Minister Bjorgvin Sigurdsson told reporters the government had appointed new boards of directors for banks Landsbanki, Glitnir and Kaupthing, all of which the state took over last month.

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Published on  Mon, Nov 10 2008, 08:16 GMT

Iceland's central bank unexpectedly raised the benchmark interest rate to 18 percent

Mon, Nov 3 2008, 12:36 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

EMERGING MARKETS

Emerging-market debt ended stronger Thursday, better bid and buoyed by the Federal Reserve's decision to open dollar swap lines in developing countries. The spread on JPMorgan's Emerging Markets Bond Index Global Diversified was 65 basis points tighter at 737 basis points over Treasurys in late afternoon activity, for a positive return of 1.89%. Brazil's benchmark bond, the Global 2040, gained 11/16 to 113 15/16 bid, according to Reuters. Brazil's spread on JPMorgan's EMBIGD was 41 basis points tighter at 477 basis points over Treasurys, for a positive return of 1.46%. "The swap lines helped," a debt trader in New York said. "People who have been building up cash are dipping in a little," he added. The Fed Wednesday announced additional swap arrangements with central banks in South Korea, Mexico, Brazil and Singapore. The Mexican government said Thursday it plans to buy back as much as 40 billion pesos ($3.2 billion) in medium- and long-term bonds to support liquidity in the local market. It said it will buy back fixed-rate bonds with maturities ranging from 10 to 30 years, denominated in pesos or inflation indexed units known as UDIs. Markets reacted swiftly to the announcement, with Mexico's risk premium on JPMorgan's EMBIGD tightening almost immediately. Mexico's risk premium was recently 43 basis points tighter at 394 basis points over Treasurys, compared with 36 basis points tighter at 301 basis points over Treasurys shortly before announcement. Returns, however, stayed at positive 0.66%, and Mexico's benchmark bond, the 2034, remained at 88 bid, according to Reuters. Meanwhile, Brazil's National Treasury sold fixed-rate LTN bonds with a total face value of 900 million Brazilian reals ($429 million), but was forced to pay higher interest rates as liquidity remains tight in credit markets. Ukraine's debt was recovering from a rocky week. The country's spread on JPMorgan's EMBIGD was 184 basis points tighter at 2079 basis points over Treasurys. Returns were a positive 4.03%.

LATIN AMERICA

Argentina

Argentina's debt ratings were cut by Standard & Poor's for the second time in less than three months amid mounting concern the global financial crisis and a tumble in commodity export prices will lead to default. S&P lowered the South American country's foreign debt rating to B-, six levels below investment grade and in line with countries including Bolivia and Lebanon, from B after cutting it from B+ on Aug. 11. The rating outlook is stable, S&P said. Argentine bonds have plummeted this month, pushing benchmark dollar-denominated yields as high as 30 percent, as the tumble in commodities crimps the country's export receipts and tax revenue. Bond declines deepened last week after President Cristina Fernandez de Kirchner announced plans to nationalize pension funds, a move many investors said is a bid to use the funds' $26 billion to avert the country's second default this decade.
Argentina's private pension funds will propose a series of reforms as an alternative to the government's bid to nationalize the system, newspaper La Nacion quoted a top sector official as saying on Sunday. Sebastian Palla, president of the Union of Argentine Retirement and Pension Administrators business group, will send the government a plan on Monday that envisages more conservative investment and would eliminate commissions during profitless months, the paper said. "All of this was put forward before, at different times," Palla told the paper. "None of it is hugely novel. What we are doing now is grouping (the ideas) together while we urgently discuss this." President Cristina Fernandez's government last month announced a plan to take over Argentina's private pension system, in what was seen as a desperate move to secure funds to head off the specter of a new debt default. Critics say the government wants to use the flow of $4 billion a year in retirement contributions to meet billions of dollars in payments coming due next year. "Today, (private Argentine pension funds) have 10 percent of their members' contributions invested abroad and 55 percent invested in Argentine debt," Palla said. Argentine bonds fell around 60 percent in October. "Let us discuss the composition of these portfolios. The healthiest thing would be to have more diversified risk." The head of Argentina's social security system said last week the government would not liquidate private pensions or use them as a tool to finance debt if Congress approves a bill to nationalize the funds. The move to take over pension funds, which manage around $25 billion in retirement savings, has rocked investor confidence in South America's No. 2 economy. The government on Saturday urged the country's pension funds to fight a U.S. court freeze on about $2.5 billion worth of assets, as holders of defaulted government bonds try to get their money back. On Sunday, the newspaper Pagina 12 reported that the government was considering legal action against the pension funds, and may charge them in court with failing to protect contributors' money in a bid to counter the freeze. A U.S. judge this week ordered the freeze after bondholders argued that the plan to nationalize 10 private pension funds meant the assets managed would become state property and therefore subject to claims by holdouts who rejected a restructuring after Argentina's world-record debt default.

Brazil

Brazilian economic growth may slow to 2.2 percent next year as the U.S. enters a ``strong recession'' and demand from China slackens, according to Bradesco Corretora, the research arm of Brazil's biggest non-state bank. ``The recession in the U.S., as well as deceleration in China and other developing nations, should continue to put negative pressure on the steel, mining and oil sectors' performance,'' economists and analysts wrote in a note to clients.

Chile

President Michelle Bachelet claimed victory after Chileans divided their votes in ballots, handing the opposition a lead in elections for 345 mayors while supporting government candidates for town and city councils. The opposition Alliance for Chile coalition won 40 percent of votes for mayors and control of Santiago's city hall for a third straight time. Bachelet's four-party Concertacion de Partidos por la Democracia won 38 percent.

Colombia

Colombia's consumer prices rose 0.4 percent in October from the previous month. Inflation quickened when compared with a decline in consumer prices of 0.19 percent in September, the national statistics agency said on its Web Site.

Mexico

Mexico's lower house of congress approved measures to give state-owned Petroleos Mexicanos more leeway to hire private and foreign companies. Lawmakers led proceedings at a makeshift stand on the floor of congress after opposition legislators allied with former presidential candidate Andres Manuel Lopez Obrador seized the usual podium, waving Mexican flags and setting off air horns and sirens in a bid to derail the vote. The passage is a political victory for President Felipe Calderon, who overcame two attempts by opponents this year to block congress from voting on the measures, said Jeremy Martin at the Institute of the Americas in La Jolla, California.

Peru

Peruvian inflation accelerated 0.61 percent in October on electricity rates, transport and food prices, the government said. Consumer prices last month rose from 0.57 percent in September, the national statistics agency said.

Venezuela

The same tumbling oil prices that led OPEC to slash output last week threaten to send Venezuela's economy into a tailspin, and put an end to President Hugo Chavez's ambitions to expand his socialist revolution at home and abroad. To cope with plummeting oil revenue, the source of half the government's spending, Chavez may have to cut domestic handouts and foreign aid.

AFRICA & MIDDLE EAST

Egypt

Egypt's President Hosni Mubarak said the global financial crisis will hurt the country's economy, cutting tourist revenue and shrinking imports. ``Egypt expects the crisis to impact imports as well as tourism receipts and the Suez Straits receipts,'' Mubarak told reporters in the courtyard of the French Elysee Palace in Paris. His comments were translated from Arabic.

Ghana

Vendors hawking handbags and fruit along downtown Accra's Liberia Road are busier than the traders five stories upstairs on the Ghana Stock Exchange. An offshore-oil discovery, rising commodity prices and government spending on roads and other projects drove the market to a 64 percent gain this year, making it the world's best- performing bourse. Then volume on the market fell to 23,875 shares daily over the last four weeks, a 20th of the average for the past six months. This left investors unable to flee even as stocks in nearby Nigeria declined 41 percent since March 5. On some days, almost no shares have changed hands in the Cedi House Building. ``It's hard to call it a stock market because of the liquidity levels,'' said Don Elefson, an emergingmarkets specialist at Harding Loevner Management in Somerville, New Jersey. ``Ghana's a little market that gets forgotten.''

Israel

Standard & Poor's on Thursday revised its outlook on Israel's sovereign foreign currency credit rating to stable from positive. The revision reflects the rapid deterioration of the external economic environment, which may slow the decline of government debt at just below 80 percent of GDP in 2008, S&P said in a statement. The change in outlook also reflects the political stalemate that has led to a breakdown of coalition negotiations, preventing any real progress on negotiations with the Palestinian Authority. Key partners for Israel's exportoriented economy, such as the United States and European Union, are sliding into recession, which may be severe and protracted, S&P said.

South Africa

South Africa's private sector credit demand growth braked to a 3-½ year low of 16.42 percent year-on-year in September, below forecasts, adding to signs higher interest rates are cutting spending. Statistics South Africa said on Wednesday credit growth slowed from 18.64 percent in August to its lowest level since early 2005. During the same month, growth in the broadly defined M3 measure of money supply eased to 15.23 percent year-on-year -- a more than 3 year low -- compared to 15.42 percent previously. A Reuters poll had forecast private sector credit growth would slow to 17.4 percent in September, while the annual growth in M3 was seen at 15.21 percent. Analysts said the slowdown may ease some of the concerns about the impact on inflation from a sharply weaker currency.
South Africa's unemployment rate, the highest of 6 countries monitored by Bloomberg, rose to 23.2 percent in the third quarter, suggesting growth in the continent's biggest economy is slowing amid the global financial crisis. The jobless rate climbed from 23.1 percent in the previous quarter, Pretoria-based Statistics South Africa said in its quarterly labor force survey.

Zambia

Zambia's opposition Patriotic Front will launch a court challenge on Tuesday to demand a vote recount after centrist politician Rupiah Banda was sworn in as president on Sunday after a disputed poll. Defeated opposition leader Michael Sata has branded the election to find a successor to the late President Levy Mwanawasa a fraud. Mwanawasa died from a stroke in August, two years into his second five-year presidential term. "They are still preparing certain documents and they will be filing them tomorrow," said Given Lubinda, spokesman for Sata's Patriotic Front said on Monday. The court petition will ask for a recount and the verification of all ballots cast in the election, he said. Zambia has been one of the most politically stable nations in Africa. However, a prolonged election dispute could unsettle investors at a time when Africa's largest copper producer is feeling the pinch from the global financial crisis. Banda -- acting president after Mwanawasa's death -- won 40 percent of the 1.79 million votes cast on Thursday versus 38 percent for Sata, according to final results released by Zambia's electoral commission. A third candidate took the bulk of the remaining votes. The margin of victory was 35,209 votes.

Zimbabwe

Zimbabwe will soon introduce higher denomination banknotes, of up to one million Zimbabwean dollars, in a bid to ease the effects of hyperinflation, the country's central bank said on Monday. The southern African country lopped 10 zeros off the currency on Aug. 1, but it continues to lose value as inflation surges. The government put inflation at 230 million percent for July, the world's highest, although the Washington-based Cato Institute foundation estimates it now at 10.2 quadrillion percent. Currently, the highest denomination banknote is Z$50,000, not enough to buy a loaf of bread, and the central bank plans to introduce Z$100,000, Z$500,000 and Z$1 million (about $8) banknotes in a bid to help consumers battling to make simple purchases. "In the measures underway, the Reserve Bank plans to introduce a number of new, higher denominations; review the cash withdrawal limits, as well as commence aggressive campaigns for increased usage of alternative means of payment," the central bank said in a statement. Zimbabwe's economic crisis -- blamed on President Robert Mugabe's policies -- has worsened amid a stalemate over cabinet positions in a power-sharing government the veteran ruler agreed to form with opposition rival Morgan Tsvangirai on Sept. 15. Analysts say the power-sharing pact offers the best chances of hauling the country out of its worst economic crisis, but hopes of a quick turnaround have been dimmed by a disagreement over key ministerial appointments, which now threatens the deal.

ASIA

China

HSBC Holdings Plc, Citigroup Inc. and other foreign banks in China boosted their profit in the first nine months by 112.7 percent, the nation's banking regulator said. Foreign banks earned a combined 10.1 billion yuan ($1.5 billion) in the period ended Sept. 30, the China Banking Regulatory Commission said in a statement. They expanded loans by 25.4 percent in the period to 786.5 billion yuan, with a non-performing loan ratio of 0.5 percent. Foreign lenders controlled about 2.3 percent of China's 59.3 trillion yuan of assets as of Sept. 30, according to the statement.
China cut interest rates for the third time in two months to stimulate growth in the world's fourth-largest economy after the global financial crisis curbed exports and production. The key one-year lending rate will drop to 6.66 percent from 6.93 percent, the People's Bank of China said on its Web site. The deposit rate will fall to 3.60 percent from 3.87 percent.
China has kept the yuan almost unchanged against the dollar this month while allowing record trade-weighted appreciation, effectively reverting back to the fixed exchange rate it abandoned three years ago.

India

India and China are accelerating efforts to prop up growth as a global slump threatens the world's fastestexpanding major economies. The Reserve Bank of India on Nov. 1 lowered its benchmark interest rate for the second time in two weeks, and for the first time in 11 years reduced the amount of money lenders are required to keep in government bonds. China's central bank removed temporary controls over loans to maintain ``relatively fast'' growth, Xinhua News Agency reported Nov. 1, three days after cutting its key rate for the third time in two months. ``The gathering crisis in more advanced economies is forcing Asian policy makers to jettison assumptions about the health of export sectors,'' said Mark Williams, an international economist at Capital Economics Ltd. in London. ``Interest rates will tumble.''

Pakistan

Moody's Investors Service has lowered the Pakistani government's bond ratings from B2 to B3 and kept the ratings on review for downgrade. In September 2008, Moody's had moved the outlook from stable to negative. "The rating action was prompted by the continuing erosion of the country's external liquidity position, which has remained inadequately addressed by policy adjustments and has suffered from delays in assistance from key bilateral and multilateral creditors," says Aninda Mitra, Moody's sovereign analyst for Pakistan.

South Korea

South Korea said on Monday it plans to pump an extra $11 billion into its economy next year to help soften the impact of the global financial storm, which is beginning to hit exports -- the country's economic lifeblood. The pledge coincided with news of lower-than-expected inflation, which analysts saw as possibly paving the way for another interest rate cut this week after last week's record 75 basis point cut to prop up Asia's fourth largest economy. "The Bank of Korea will likely cut the rates further, at least by 25 basis points this Friday. If not, it may push the financial market into a tailspin again," said Park Jong-youn, fixed-income analyst at Woori Investment & Securities. The promise of more budget spending and tax cuts came just after data showed export growth had fallen to a 13-month low in October, offering stark proof of the damage from the global economic downturn. The pledge also follows last month's more than $130 billion package earmarked by the authorities to shore up the financial sector. "If the current situation continues, the economy is expected to grow by around 3 percent next year. If the global economy shrinks further, it may be difficult to achieve 3 percent growth," Finance Minister Kang Man-soo told reporters.

EMERGING EUROPE & CIS

Poland, the Czech Republic and Slovakia will weather the global financial crisis relatively well but the Baltic republics and Hungary will be hit hard, the European Commission said on Monday. The European Union executive's twice-yearly forecast highlighted growing economic divergences in ex-communist Central and Eastern European states that joined the bloc in 2004-2007, most of which have yet to adopt the euro currency. Presenting the forecast, EU Monetary Affairs Commissioner Joaquin Almunia said the crisis had made joining the euro zone more attractive for Poland and other countries, but noted no state would meet the relevant criteria by spring 2010. "This financial crisis ... has created a new awareness about the risk of not being a member of the euro area. So I look forward for renewed political will to prepare the economies of non-euro area countries for joining the euro area," he said. The Commission slashed economic growth forecasts for Poland, the Czech Republic and Slovakia, but their economies are still expected to expand next year and in 2010 at a healthy pace compared with the euro zone. However, Estonia, Latvia and Lithuania will plunge into recession, accompanied by high inflation and widening budget deficits, complicating their efforts to join the euro zone. Hungary, forced to seek International Monetary Fund and EU help after the crisis hit it hardest among the bloc's members, is expected to expand by 0.7 percent in 2009. But Almunia said his forecast was made before Hungary had announced its latest prediction of a 1.0 percent economic contraction next year.

Baltic States

Standard & Poor's said on Monday it lowered the credit ratings on Lithuania and Latvia, while affirming the ratings on Estonia. The outlook on all three Baltic sovereign is negative. S&P lowered its long- and short-term foreign and local currency ratings on Latvia to "BBB/A-3" from "BBB+/A-2", on expected fiscal deterioration and increased risks the government will have to support domestically owned banks under a worsening credit environment, S&P said in a statement. "The uncertainty surrounding these banks' liquidity needs, refinancing capacity, and worsening credit quality increases the external vulnerabilities of the Latvian economy." S&P's credit analyst Eileen Zhang said. The negative outlook reflects the prospect of a downgrade if the government takes on substantial debt to support one or more banks operating in Latvia, or if a large outflow of funds triggers a balance of payment crisis.

Bulgaria

Ratings agency Standard & Poor's cut Bulgaria's credit rating to BBB from BBB+ with a negative outlook on Thursday, citing worries about external imbalances and economic cooling. "The downgrade reflects our concerns over the sovereign's heightened external vulnerabilities," S&P credit analyst Marko Mrsnik said in a statement.

Croatia

Standard & Poor's Ratings Services revised its outlook on the Republic of Croatia to negative from stable. At the same time, the 'BBB/A-3' foreign currency and 'BBB+/A-2' local currency sovereign credit ratings were affirmed. The Transfer & Convertibility assessment on Croatia remains 'A-'. The outlook on Hrvatska banka za obnovu i razvitak, the sole government-owned specialized development and export finance bank, was also revised to negative, mirroring the sovereign, and the 'BBB/A-3' foreign currency and 'BBB+/A-2' local currency ratings were affirmed. In a related action, the outlook on the City of Zagreb and Zagrebacki Holding d.o.o. was revised from stable to negative, and the 'BBB' long-term ratings were affirmed. The outlook revision reflects risks to Croatia's ability to finance high external imbalances in the present difficult international environment. Croatia's substantial current account deficits have driven up external debt liabilities in recent years, to over 140% of current account receipts in 2007, compared with the 'BBB' median of just under 100%. The risks associated with substantial leveraging and exchange rate exposure of households and corporates increase the vulnerability of the Croatian economy to an interruption in the external credit channel. As a result, the outlook for growth is uncertain, not least due to the relative openness of the Croatian economy, with goods and services exports totaling just under 50% of GDP.

Hungary

Hungary's primary task is to reduce its budget deficit and the country should not expect any special conditions to join the eurozone early, European Economic and Monetary Affairs Commissioner Joaquin Almunia said. Hungary missed earlier opportunities to consolidate its budget and entered the current financial crisis in a difficult position, Almunia told business daily Vilaggazdasag in an interview. So before any economic stimulus is implemented, the budget must be put in order, he said. Almunia also dismissed some suggestions by Hungarian politicians and businessmen that Hungary should be allowed to enter the eurozone without meeting the Maastricht criteria and said Hungary is welcome to join the common currency but only when all conditions are met. Hungary has been one of the hardest hit European nations in the financial crisis but secured the support of the International Monetary Fund, which helped arrange a $25.1 billion rescue package for the county. As part of the deal with the IMF, Hungary agreed to lower the budget deficit to 2.6 percent of gross domestic product next year from an expected 3.4 percent in 2008, in part through painful social spending cuts. Currently, Hungary does not meet any of the Maastricht criteria for eurozone membership and analysts have put the country's accession date around 2013-2014 but have said the planned acceleration in deficit cuts may move that date forward.

Kazakhstan

Kazakhstan will press banks to raise more capital or accept a partial nationalisation offer as it tries to fend off the impact of the global credit crisis, the state regulator said on Monday. The government's proposal to partially nationalise the four biggest banks in Central Asia's top economy is a worry to equity investors, whose stakes will be diluted in the transaction. The four largest Kazakh banks have tentatively agreed to raise their capital by selling stakes to the government, which last week offered the banks a $5 billion aid package. But the transactions have yet to be approved by bank shareholders. Putting more pressure on bank owners to accept the government's offer, the regulator said it would introduce a new capital adequacy ratio, measuring the size of a bank's Tier 1 (core) capital against its risk-weighted assets. "The ratio will probably be 11 percent," FSA Chairwoman Yelena Bakhmutova told reporters in the capital Astana. The new ratio is likely to require banks to seek capital injections should they recognise further asset quality deterioration, which analysts and the regulator say is inevitable in light of deepening financial instability.

Poland

Standard & Poor's revised its credit outlook for Poland down to stable from positive on Monday, citing the deterioration in the international markets and tightening credit conditions. S&P affirmed the "A-" sovereign foreign currency credit rating. Poland is rated "A-" by Fitch Ratings, while Moody's Investors Service holds it one notch higher at "A2". "The outlook revision reflects the adverse impact that we expect the deteriorated international economic and financial environment to have on the Polish economy," Kai Stukenbrock, sovereign credit analyst at S&P, said in a statement. "Slowing external demand, tightening credit conditions and reduced availability and higher cost of external funding will lead to a slowdown in economic activity and increased pressure on private and public sector balance sheets," Stukenbrock wrote.

Romania

Standard & Poor's cut Romania's foreign currency credit rating one notch to "BB+", putting it back at junk status with a negative outlook, citing a lack of policy actions to counter mounting economic risks from overly high credit leverage. "The downgrade reflects the mounting risks to Romania's real economy due to high and rising private sector leverage and the related dependency on an increasingly uncertain external financing channel," Marko Mrsnik, sovereign credit analyst at S&P, said in a statement. "Policy-makers have not addressed these growing economic challenges, as the focus has shifted to the upcoming general election, which has intensified the generally antagonistic and uncooperative political environment," Mrsnik said.
Romania's deputy central bank head Cristian Popa on Tuesday, criticised a Standard & Poor's downgrade of Romania to below investment grade as "unwarranted," and said the country's access to financing did not show "obvious" problems. Below are Popa's comments made in a meeting with reporters: "I think it was unwarranted. Looking at the positives and the negatives of the Romanian economy, it is less risky than other economies in its peer group." "The positives of Romania (are) low public debt, low credit-to-GDP (ratio), a slowdown in credit growth, short-term debt (growth being) much slower than long-term debt for the private sector, high reserves as (compared to) debt, (high) reserve requirements that could be used in a managed fashion to release liquidity and help banks in their effort to maintain business." "They say we have a very high vulnerability because of the current account deficit ... It is true, but I remind you that a correction (in the current account deficit) has already started."
The Romanian central bank's hard currency reserves, excluding 103.7 tonnes of gold, rose 1.3 billion euros ($1.67 billion) on the month to 27.3 billion euros in October, central bank data showed on Monday. Inflows were 4.4 billion euros, coming mainly from changes in the minimum reserve requirement on hard currency liabilities for commercial banks, transactions on the interbank market and funds deposited in the European Commission account. Outflows totalled 3.1 billion euros, largely reflecting interbank transactions, payments to service Romania's public external debt and changes in the minimum reserve requirement.

Russia

Russia's international reserves dropped $31 billion last week, the biggest decline this year, as the central bank struggled to prop up the nation's currency and a banking system under threat from the global financial crisis. The reserves fell to $484.7 billion, the lowest since the end of January, after dropping for four consecutive weeks, the Moscow-based central bank said in an e-mailed statement. The slump is the longest since Bank Rossii switched methodologies this year to calculate the reserves. ``Its a very bad number,'' said Natalia Orlova, the chief economist at Alfa Bank in Moscow. ``It's a signal that companies have started to not trust the ruble.''

Turkey

The European Bank for Reconstruction and Development plans to provide Turkey with $600 million of investment by the end of 2010, it said on Tuesday after its board accepted the country as a recipient. The bank said investments would focus outside the main metropolitan areas, aiming on further developing Turkey's private sector and targeting small and medium-sized companies under particular pressure from global and local market turmoil. "A dynamic market economy in Turkey will benefit not only the people of Turkey but also help strengthen other economies in the EBRD region given the country's economic importance," EBRD President Thomas Mirow said in a statement. "Such a move to help secure a sustainable economic future for the countries in our region is all the more important now at this time of global economic uncertainty."
The World Bank expects Turkish banks' non-performing loans rate to rise from 3.5 percent now as the global credit crunch hits its corporate sector, Country Director Ulrich Zachau said on Tuesday. Zachau told Reuters in an interview he expected Turkish economic growth to fall substantially in the second half of 2008 and next year compared to previous years' and added that a 4-percent growth projection for 2009 was optimistic. "As the credit crunch affects the private sector in Turkey, corporate businesses and especially small- and medium-sized businesses, we would expect non-performing loan ratios to go up somewhat, but they are still low," Zachau said.

Ukraine

Standard & Poor's lowered its long- term credit rating for three Ukrainian banks and set their outlook as negative because of ``increased pressure on the banks' asset quality''. UniCredit's Ukrsotsbank, Ukraine's fourth biggest bank by assets, Alfa-Bank Ukraine, the 10th biggest bank by assets, and PKO Bank Polski SA's VAT Kredobank had their credit rating cut from `B+' to `B' by S&P on ``the rising cost to the Ukrainian government of a necessary recapitalization of the banking sector'' and ``heightened exchange rate risk,'' Standard & Poor's credit analyst Annette Ess said in an e-mailed statement.
Ukrainian politicians have been unable to agree on much of anything since the country rejected its Soviet past in the 2004 Orange Revolution. Their squabbling now may lead to a currency devaluation and more capital flight. Parliament took more than a week to pass legislation on Oct. 31 accepting the initial terms of a $16.5 billion International Monetary Fund loan, as a tumbling currency and $100 billion in debt to be repaid next year threaten the economy and the financial system. Still to be debated are the final belt- tightening measures required by the IMF. President Viktor Yushchenko has called an early election to face off against pro-Russian Viktor Yanukovych, who initially claimed victory in the rigged 2004 presidential election that led to the Orange Revolution, and his own prime minister, Yulia Timoshenko. Yet he can't fix a date because Timoshenko doesn't want to. Her party has prevented lawmakers from voting on a date by physically barring access to the chamber. ``Instead of uniting to save the country, they're falling apart,'' said Ariel Cohen, a political analyst at the Heritage Foundation, speaking of Yushchenko and Timoshenko by telephone from Washington. `` The IMF threw them a lifeline. Instead of grabbing it, they're pushing each other away from it, so everyone sinks.'' Ukraine needs the money because much of its debt is in dollars. As the currency, the hryvnia, falls, the cost of repaying the debt rises. Yushchenko puts the value of debt due to be repaid next year at about $80 billion in corporate debt and about $20 billion that is owed by the state.

INDUSTRIAL COUNTRIES

Iceland

Iceland's central bank unexpectedly raised the benchmark interest rate to 18 percent, the highest in at least seven years, after the island reached an aid agreement with the International Monetary Fund.
Iceland's ruling party, struggling to cope with a meltdown of the island's economy, is losing support from voters, according to a poll published in the daily Morgunbladid on Sunday. Prime Minister Geir Haarde's Independence Party, in power for 17 years, polled 22.3 percent in the survey by Gallup. Its coalition partner, the Social Democratic Alliance, registered at 36.9 percent. The prime minister has said the collapse of the banking system could eat up as much as 1.1 trillion crowns ($9.15 billion), or 85 percent of 2007 gross domestic product. In a Gallup/Morgunbladid poll a month ago, the Independence Party had 28.4 percent, the Social Democratic Alliance 31.2 percent and the main opposition party, the Left Greens 25.3 percent. In the most recent survey, the opposition Left Greens polled 26.9 percent. In the survey, pollsters asked 1,200 voters aged 18-75 between Oct. 27-29 October which party they would vote for if elections were held today. A national vote in 2007 gave the Independents 36.6 percent, the Social Democratic Alliance 26.8 percent, the Left Greens 14.3 percent, the Progressives 11.7 percent and the Liberals 7.3 percent, according to figures published on the National Electoral Commission's website. The next parliamentary election is scheduled for 2011. The poll also showed that 60.6 percent of the population want an early vote. On Saturday, 1,000 people marched through central Reykjavik and joined a rally in front of the Althing Building -- Iceland's parliament -- demanding a new vote, the resignation of the cabinet and the dismissal of the central bank's governing board. This was the third Saturday rally in as many weeks. Organisers of the rally told state television they plan similar demonstrations every Saturday until their demands had been met. In response to a question about Iceland adopting the Euro, nearly 80 percent were in favour while 20 percent were against.

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Published on  Mon, Nov 3 2008, 12:36 GMT

Chilean inflation remains high, central bank president Jose De Gregorio said in Santiago

Mon, Oct 27 2008, 10:20 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

EMERGING MARKETS

Emerging markets are the latest asset class to feel the force of the global financial crisis, but they're not about to become part of the problem. Emerging markets aren't causing more troubles; in fact, they will prevent the global economy from contracting this year and next. They certainly won't be turning en masse to the International Monetary Fund for bailouts. A handful may require drastic action, and some may want the comfort of an IMF standby agreement as a backstop, but most will be able to stand on their own two feet. Emerging markets are clearly vulnerable to the fallout from the financial crisis. Some companies in emerging markets relied on cheap overseas credit, and are suffering now that has been shut off. It has coincided with the slump in commodities, which has brought some over-enthusiastic bets down to earth. But they aren't exposed directly to losses from toxic assets such as U.S. structured finance. Governments would do well to stick by the responsible policies they've put in place, but some may fall down. As Standard and Poor's warned recently, the five-year run of improving creditworthiness across the asset class may well have peaked - but that doesn't mean it's going to slump. More of a plateau, said S&P. Yes, growth is slowing in emerging markets, but it's still far stronger than in the developed world. A small decline in growth rates would be a healthy withdrawal from blistering and highly inflationary levels. China's gross domestic product growth slipping from 12% closer to 9% is very welcome. The growth emphasis is also shifting from export-driven to domestic demand. The Institute of International Finance, which represents the world's banks, said this week that it expects GDP growth in emerging markets to reach 6.3% this year and 5.2% next year. That will be enough to offset the slowdown in developed economies, and the IIF sees that propping global growth up to the tune of 2.2% in 2008 and 1.4% in 2009. Two of the countries that have made most progress in reducing their vulnerabilities have put them front and center in the current selloff. Brazil and South Korea both have floating exchange rates as well as broad and deep capital markets, and have performed exceptionally well in recent years. As global investors hoarding cash look across their portfolios for something to sell, these two are natural candidates. The Brazilian real has lost nearly 31% against the dollar since July, and is currently trading at a three-year weak point of around BRL2.30. The South Korean won has lost 35% against the dollar, and is trading at levels not seen since its own previous crisis in 1997, at KRW1,400. Governments in both countries have taken steps to help those companies and banks that have been caught out by the global dash for dollars. But their economies are both fundamentally strong, and each has more than $200 billion in foreign reserves. Those won't be exhausted unless the financial crisis maintains its ferocity for months, possibly years. There are some notable exceptions, primarily in Central and Eastern Europe which have large current account deficits and are dependent on overseas financing. Most of these will be able to turn to the IMF, which has more than $250 billion on tap to disburse. The initial list of potential IMF supplicants includes Turkey, Hungary, Pakistan and Iceland, which together will require, if maximum historical borrowing levels are maintained, about $97.5 billion, according to an estimate by TD Securities. That means there's still plenty of space for the IMF to help without resorting to other measures, such as tapping a credit line offered by Japan from its $1 trillion of reserves. Then there are the basket cases, such as Argentina, which has opted to expropriate funds from the private pension system to relieve its funding pressures instead of turning to the IMF. It has had a poisonous relationship with the institution since its mammoth sovereign default of late 2001. Specialist emerging markets investors have long discounted Argentina as a reliable proposition. Most emerging markets must prove their mettle in the current environment. Responsible policies and canny uses of foreign exchange reserves will see them through. Fortunately, they won't be contributing to the problems this time round. And once the crisis clears, they will be much better placed for recovery than much of the developed world.

LATIN AMERICA

Argentina

Argentina's bonds and stocks plunged for a second day as a planned government takeover of $29 billion of pension funds stoked concern the South American country is headed for its second default this decade. President Cristina Fernandez de Kirchner's bid to seize the private funds is undermining investor confidence that was already faltering as prices on the country's commodity exports tumbled and a five-year-old economic expansion began to sputter. The last time the government sought to tap workers' savings to help finance debt payments was in 2001, just before it halted payments on $95 billion of bonds. ``It's the final of many nails in the coffin from an institutional investor perspective,'' Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London.

Chile

Chilean inflation remains high, central bank president Jose De Gregorio said in Santiago. The country's banking system is ``solid'' and interbank lending has ``normalized,'' De Gregorio added.

Colombia

Colombia's central bank kept interest rates unchanged in a bid to head off a resurgence of inflation running near the fastest pace since 2001. The bank's seven-member board, led by chief Jose Dario Uribe, held the interbank rate at a seven-year high of 10 percent, meeting the forecasts of 33 of 36 economists surveyed by Bloomberg.

Jamaica

Standard & Poor's said on Tuesday it is likely to downgrade Jamaica's credit ratings if external pressures and an expected economic downturn add to the country's fragile fiscal position. S&P revised the outlook on Jamaica's "B" sovereign credit ratings to negative from stable, warning that deteriorating global financial conditions are making it more difficult for the government to meet its external funding needs, despite high primary fiscal surpluses. "Our negative outlook reflects a likely downgrade if external pressures add to fiscal uncertainty, raise capital outflows, or significantly impair external liquidity," the ratings agency said in a statement. It also warned against the risk of deterioration in Jamaican banks' asset quality, which could further weaken the financial sector's ability to finance the government's large borrowing requirements. Jamaica's foreign reserves fell to $2 billion from $2.3 billion in the past 30 days, S&P said, as the Bank of Jamaica intervened in the foreign exchange market to support the currency, which still depreciated by 2.8 percent during the period.

Peru

Peru's exports rose 4.2 percent in September from a year earlier on rising sales of gold and agricultural commodities. Exports climbed to $2.66 billion in September, the government's export promotion agency, Promperu, said in an e- mailed statement. Gold rose 17 percent to $457 million, while coffee almost doubled to $102 million and chemicals rose by a half to $103 million.

AFRICA & MIDDLE EAST

Poor African countries should be invited to an international summit on the global financial crisis next month, Benin's president said at the weekend. Finance ministers and central bankers from the G20 group of industrialised and developing countries plan to meet in Brazil on Nov. 7-9 to discuss reforming global financial regulation. South Africa, the biggest economy on the poorest continent, is the only African member of the group. "While we welcome this initiative to include Africa, we see that it excludes the poorest countries which are victims of the current system," Benin's President Thomas Boni Yayi told an African governance meeting on Saturday in the main city Cotonou. "Europe is coordinating; Europe and Asia are coordinating, but Africa is not coordinating. It is not even consulted," said Yayi, whose comments were broadcast on Sunday by Radio France International.

Egypt

Egypt's economy will grow six percent next year, Minister of Finance Youssef Boutros-Ghali said. ``When we slow down, we will be somewhere around six' percent”, he told reporters in Cairo. The budget deficit is expected to remain at 6.9 percent of gross domestic product despite continued government spending, Boutros-Ghali said. The economy grew 7.2 percent last year.

Nigeria

Inflation in Nigeria, sub-Saharan Africa's second-biggest economy, accelerated to 13 percent in September as food and energy costs increased. The inflation rate rose from 12.4 percent in August, the Nigerian Bureau of Statistics in the capital, Abuja, said in a statement on its Web site. The pick-up in inflation was caused ``mainly by an increase in the price of some staple food items, diesel, kerosene, gas, some building materials and household goods,'' the agency said.

South Africa

Jacob Zuma, the president of South Africa's ruling party, said the central bank will remain independent after a new administration takes control of the government next year. The government's finances are in ``good shape,'' though the ``efficiency'' of state spending must improve, Zuma said in a speech in Washington yesterday, according to an e-mailed copy. It was ``prudent'' not to make any ``dramatic'' changes in further easing exchange controls in an environment of global financial crisis, he added. Zuma said there was ``no political crisis'' in the country, even after some senior members of the African National Congress said they plan to form a breakaway faction.

ASIA

China

China's economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports. Gross domestic product rose 9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing. That was less than any of the 12 estimates in a Bloomberg News survey and the 10.1 percent gain in the previous three months. The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting.
Agricultural Bank of China will get $19 billion from the government, paving the way for the lender to sell shares to the public and capping a decade-long bailout of the nation's banking industry. Central Huijin Investment Co., a unit of China's sovereign wealth fund, will inject the cash and take a 50 percent stake, Agricultural Bank Vice President Pan Gongsheng said at a press conference in Beijing. China's finance ministry will hold the rest, he said. ``This culminates years and hundreds of billions of dollars of backstopping of China's banking industry,'' said David Liao, who helps manage $975 million at HSBC Jintrust Fund Management Co. in Shanghai. ``From now on, Chinese banks are supposed to walk on their own and the current economic downturn gives them the opportunity to prove themselves in terms of risk management and internal controls.'' The bailout will complete a reorganization of China's banking industry that's so far cost the government $500 billion, after years of statedirected lending caused bad debts to balloon. Unlike competitors such as Industrial & Commercial Bank of China Ltd., which sold stock when growth was booming, Agricultural Bank's overhaul comes as the global credit crunch saps demand for China's exports and equity offerings.

India

India's central bank unexpectedly lowered its key repurchase rate for the first time since 2004 as the global creditmarket turmoil threatens to plunge the world economy into recession. The Reserve Bank of India cut its overnight lending rate to 8 percent from 9 percent, according to a statement in Mumbai. The action came after the bank reduced the cash reserve ratio by 2.5 percentage points to 6.5 percent effective Oct. 11.

Pakistan

Pakistan has not asked the International Monetary Fund for financing but current talks with the authorities will enable the fund to respond swiftly should they do so, an IMF spokesman said on Friday. IMF spokesman Masood Ahmed, who from Nov. 1 will head the IMF's Middle East Department, said talks between the fund and Pakistani officials, now being held in Dubai, involve technical issues. "These discussions should enable the Fund to respond quickly if and when the Pakistani authorities make a formal request for financial support from the IMF," Ahmed said.

Philippines

The Philippine central bank will consider more measures to boost liquidity in the financial markets as stocks and the currency slump. ``We continue to consider other measures to further improve the distribution of peso and dollar liquidity even as, overall, there is sufficient liquidity in the system,'' Governor Amando Tetangco said in an e-mail.

South Korea

Moody's Investors Service commented on the proposed measures announced by the Korean government on October 19, 2008 to stabilize its financial markets. Noteworthy for the Korean banks are two of the measures, discussed in greater detail below, designed to restore confidence in the banking system, as well as place the banks on equal footing for overseas funding vis-a-vis other major banking systems that have received government support. Details of the plan are being finalized by the government. In the rating agency's view, the measures will help ease pressure for the domestic banks' foreign currency funding. Since the beginning of the year, Moody's had been concerned about the banks' continued tight liquidity positions, particularly in foreign currency, against the back-drop of worsening global liquidity conditions. Foreign currency funding represents about 12% of funding for the Korean banks. However, the adequacy of the USD130 billion package is difficult to assess given the current state of the financial markets and the uncertainty of how protracted the weakness becomes. The rating agency is not changing bank ratings following the government's announcement. However, the government's actions underpin Moody's assessment that systemic support in Korea is very high. Moreover, Moody's believes that the government will provide further support to the banking system, if necessary, and assuming its resources permit.
The Bank of Korea slashed interest rates by a record at an emergency board meeting in an attempt to bolster markets as the nation faces its biggest crisis since requiring an International Monetary Fund bailout 10 years ago. Governor Lee Seong Tae cut the seven-day repurchase rate 75 basis points to 4.25 percent, the central bank said in a statement in Seoul. The bank also broadened the type of bonds it will accept as collateral in money-market operations giving lenders access to more funds. The Kospi stock index slumped on concern the rate cut won't prevent the economy from slowing and could add more pressure on the weakening won. President Lee Myung Bak, who met Finance Minister Kang Man Soo and the central bank's Lee yesterday, said the country is far from experiencing a repeat of the 1997 financial crisis when it needed a $57 billion loan from the IMF.

EMERGING EUROPE & CIS

Central European governments are finally waking up to the value of the euro as an insurance against hard times after investors dumped their currencies and credit dried up in the last month. Polish Prime Minister Donald Tusk stated just that on Thursday, saying Poland would be more immune to global financial turmoil if it had been in the euro zone. That might seem obvious, but such arguments have been few and far between in what was until now a muted public debate about the single currency across the former communist region. "The financial crisis seems to have lifted support for eurozone membership among several EU countries that are still outside," the London-based Centre for European Reform (CER) said in their latest paper on the impact of the crisis on the EU. Since joining the EU in 2004, the Poles and Czechs have done little to pursue euro zone membership, lulled by improved growth, appreciation of their currencies and sinking costs of borrowing on world markets. Taking growth and easy access to cash for granted, central Europeans assumed their risk profile was permanently raised above emerging market status, reducing the incentive to adopt the euro quickly. Hence original plans to adopt the single currency in 2008-2009 were pushed back or dropped altogether, with the exception of tiny Slovenia and Slovakia. Slovenia joined this year, while Slovakia will swap crowns for euros in January.

Belarus

Belarussian President Alexander Lukashenko, seeking extra funds to help his ex-Soviet state ride out the global financial crisis, held talks with traditional ally Russia on Saturday. A delegation from the International Monetary Fund is to arrive in Belarus on Monday to consider its request for a $2 billion loan, and Lukashenko's government has also been offered a loan for the same sum over two years from Russia. The Kremlin said in a statement Lukashenko held talks with Russian President Dmitry Medvedev at an official residence outside Moscow which touched on the global financial crisis. It gave no details of any agreement. Market analysts say Belarus has a total debt of $14 billion. It also faces the prospect of a sharp hike in the amount it pays for imports of Russian gas in 2009.

Bulgaria

Standard & Poor's placed Bulgaria's foreign and local currency sovereign debt on CreditWatch negative on Thursday on concerns over its ability to finance its large current account deficit. "Bulgaria's economy had been overheating when it entered the current period of credit market turmoil, and it now faces the risk of an abrupt decline in external financing," S&P said in a statement. It added that a decision on the emerging economy's credit rating of "BBB+/A-2" on foreign and local currency debt was likely this month, depending on Sofia's policy response to "intensifying pressures resulting from external imbalances." Bulgaria's fast-growing economy depends heavily on foreign cash to finance bloated imports that fuel consumption and modernisation efforts. However, S&P said, foreign direct investment, which in 2007 fully covered the current account deficit, is declining as the property and construction sectors suffer. A senior Bulgarian government official said on Wednesday FDI will drop by at least 23 percent to 4-5 billion euros from 6.5 billion in 2007 due to the global financial crisis. Meanwhile Bulgaria's current account deficit reached 14 percent of gross domestic product in the eight months to August, and analysts say the external shortfall could rise to as much as 21 percent this year.

Hungary

Hungary has reached agreement with the International Monetary Fund and the European Union on a broad economic rescue package, including substantial financing, steadying its battered currency on Monday. The IMF said late on Sunday the deal was expected to be finalised in the next few days, and the package would help to bolster the Hungarian economy's near-term stability as it tries to stave off the impact of the global financial crisis.

Hungary needs the IMF help to restore investors' confidence in its currency and bonds, after its financial markets plunged in the past weeks as foreign investors dumped Hungarian assets on worries over the country's banking system and the financing of its large external debt. The IMF did not release the size of the financing package but analysts said it should be over $10 billion based on the IMF's agreement in principle with the Ukraine to a $16.5 billion standby loan, also announced on Sunday. With the highest interest rate in the European Union at 11.50 percent after a 300 basis point emergency rate hike last week, Hungary relies heavily on foreign capital inflows to finance its debt and deficits. "The policies Hungary envisages justify an exceptional level of access to Fund resources," IMF Managing Director Dominique Strauss-Kahn said in a statement. "Participants will include the IMF, the EU, and some individual European governments, together with regional and other multilateral institutions," he added.

Kazakhstan

The Kazakh government may invest $5 billion of its energy windfall next year in bonds issued by commercial banks to ease a refinancing squeeze, the central bank chairman said. The government may also purchase bonds issued by the National Wellbeing Fund, Anvar Saidenov told reporters in the financial capital Almaty. A decision on the bond purchases should be made next week when a government plan to boost Kazakhstan's economy will be approved. Saidenov said lenders in the former Soviet republic may have difficulty refinancing about $12 billion in debt that comes due in the next year amid the global credit crunch.

Poland

The Polish government plans soon to introduce more measures to help its banks weather the global financial crisis, including state guarantees and loans, according to the draft of a bill seen by Reuters on Sunday. If approved by parliament and signed by President Lech Kaczynski, the new law would allow Poland's centre-right government to guarantee commercial banks' loans from the central bank and other lenders on the interbank markets. Poland would also be able to lend cash and state securities to banks, the draft prepared by the finance ministry showed. It has asked the cabinet, which holds its weekly meeting on Tuesday, to consider the document as soon as possible. "The law would allow the specified measures to be taken only in a situation where financial institutions face the danger of losing liquidity," the draft states. Polish lenders have been hurt in recent weeks by concerns over their ability to obtain foreign currency through interbank markets and worries about the fate of their foreign parents.

Romania

Romania's economy will continue to grow robustly in the next few years, the national forecast commission said in its latest report released on Monday. Following is a table of macroeconomic forecasts for 2008-2010, compared with data from 2007.

Russia

U.S. Assistant Secretary of State Daniel Fried said Russia has failed to meet its obligations under a European Union-brokered cease-fire that ended a five-day war with Georgia in August. ``The cease-fire accord negotiated by Sarkozy requires Russian armed forces to withdraw to their positions before the outbreak of hostilities,'' Fried told reporters in the Georgian capital Tbilisi. ``The Russians haven't done so. They're in compliance with some of it,'' he said, referring to the cease-fire.
Ratings agency Fitch fears Russia's hundreds of smaller banks could see more failures and ratings downgrades, it said on Tuesday, saying support from states and parent institutions was key to stability in emerging banks. The Baltic states, Russia, Ukraine and Kazakhstan were the most exposed regional economies to growing banking problems, Fitch managing director for financial institutions Mark Young told Reuters, with South Africa, Turkey and the Gulf most secure. "In Russia, the government has already put a lot of money into the banking sector and we expect that to continue," Young said, adding that some negative ratings actions had already been taken on key Russian banks. "The ratings of the state banks reflect government support otherwise they would be lower. Fitch has greater concerns about the lower tier banks were more downgrades and failures are possible." Out of Russia's estimated 1,200 banks, he said roughly 1,000 were "very small and weak in terms of their franchise and often suffer liquidity problems in times of stress." There had already been several banking failures, he said, as well as deposit runs sparked by dubious rumours.
Russian companies may default on almost a third of local-currency bonds as soaring borrowing costs make it ``impossible'' to refinance the debt, according to the Bank of Moscow. A third of ruble debt is ``under severe distressed risk,'' Denis Gaevski, head of capital markets at Bank of Moscow, the third-biggest arranger of ruble bonds this year, said in an interview in London.
Three months after Russia was considered a serious contender for an A-level credit rating on its sovereign debt, ratings agency Standard & Poor's Corp. dashed those hopes by revising its ratings outlook on Thursday, a move that could also increase capital outflows from Russia, which is suffering its worst financial crisis in a decade. S&P revised its outlook to negative from stable on Russia's long-term debt, citing threats from increasingly expensive government efforts to rescue the country's battered financial markets. The agency affirmed the BBB+ long-term foreign currency and the A- long-term local currency ratings, but warned this might change.

Turkey

Turkish bond prices, stocks and the lira fell on Monday on concerns over the global economic outlook, exacerbated by fears over Turkey's economic stability given Ankara's reluctance to sign a new deal with the IMF. Investor caution drove the yield on Turkey's June 23, 2010 benchmark bond to a new four-year high at 24.66 percent while the Turkish lira traded 1.5 percent lower against the dollar at 1.7130, continuing last week's slide. The currency closed at 1.6880 on Friday. Global risk aversion and recession fears continue to batter Turkish assets, but more specific concerns over the adequacy of the Turkish government's reaction to the crisis are increasingly coming to the fore. Many in Turkey's business community are pressing Ankara to sign a precautionary standby loan deal with the IMF to restore confidence in the country. Turkey's last IMF programme with the fund, a $10 billion standby deal, expired in May. However the government appears to remain reluctant to bring the IMF on board due to popular resentment towards the Washington-based institution for past measures it has imposed, although there was little evidence of such opposition now. "In such a crisis environment we cannot darken our future by bowing to the wishes of the IMF," Prime Minister Tayyip Erdogan told a regional meeting of his ruling AK Party.

Ukraine

Moody's Investors Service has downgraded the global local currency (GLC) deposit ratings and the National Scale Ratings (NSRs) of 12 Ukrainian banks. Moody's has also changed the outlook to stable from positive on the B2 long-term global foreign currency (GFC) deposit ratings of 21 Ukrainian banks. The local currency debt instruments issued by four Ukrainian banks and the foreign currency debt instruments issued by six Ukrainian have also been downgraded. "Today's rating action has been triggered by (i) the downgrade of Ukraine's local currency bank deposit ceiling to Ba1/Not Prime from Baa1/Prime-2, and by (ii) the change of the outlook on Ukraine's B2 foreign currency bank deposit ceiling to stable from positive," says Yaroslav Sovgyra, Vice President -- Senior Credit Officer in Moody's Moscow-based Financial Institutions Group.
Credit ratings agency Standard & Poor's cut Ukraine's long-term foreign currency rating to B from B+ and said on Friday the outlook was negative, citing the cost of bailing out the banking sector. Ukraine is one of several emerging market nations to have sought assistance from the International Monetary Fund as global lending grinds to a halt. Government officials have said up to $14 billion could be provided. The hryvnia currency has taken a battering, losing almost 20 percent of its value in the past week despite constant central bank intervention through sales of its dollar reserves. Analysts also worry that banks will have difficulty refinancing their debt."The downgrade reflects the rising cost to the government of a necessary recapitalisation of the banking sector against a backdrop of declining growth and heightened exchange rate risk," S&P credit analyst Frank Gill said in a client note.
The International Monetary Fund and Ukraine said on Sunday they had reached an agreement in principle for a $16.5 billion loan package to ease the effects of the global financial crisis. But analysts said politicians would have to set aside differences to adopt a set of financial measures needed to clinch the deal and secure the loan. The former Soviet republic is in the throes of the latest bout of political turmoil that has gripped it since the 2004 "Orange Revolution". With Ukraine facing its third parliamentary election in as many years, the hryvnia currency has slumped to a record low. Analysts are concerned over the ability of the government, firms and banks to refinance with global lending at a standstill. The economy is expected to slow dramatically as prices fall for steel, Ukraine's major export, and energy costs climb. Foreign investment is also expected to drop, compounding the pressure on the currency by a current account gap. "The IMF is moving expeditiously to help Ukraine, and this programme is focused on the essential upfront measures needed to maintain confidence and economic and financial stability," IMF chief Dominique Strauss-Kahn said in a statement. Analysts welcomed the deal and said the $16.5 billion to be made available over two years was adequate, but only for now. "In terms of the figure, it's on the higher side of what was mentioned by key politicians in Ukraine. However, this is not such a big fund that it will solve all the problems in one swoop," said Martin Blum, head of EEMEA Economics and Strategy at UniCredit bank. Ukraine can use the funds to bolster the central bank's reserves -- which it is now spending to stop the currency from sliding further -- and to prop up the banking sector. Analysts said they did not expect news of the IMF loan to help Ukraine's fledgling stock market which has fallen 60 percent since the start of September when investors rushed from emerging markets. Bonds may do better, they said.

INDUSTRIAL COUNTRIES

Iceland

More than any of its Nordic neighbors, Iceland's Prime Minister Geir Haarde imbibed the economic policies of Margaret Thatcher and Ronald Reagan -- state-asset sales, light regulation and corporate growth abroad through debt. Now that the hangover has arrived, many of Haarde's countrymen want his Independence Party-led coalition to pay the price for turning one of the world's wealthiest countries per capita into a beggar state staving off depression. ``Many find that the government has mishandled the situation,'' said Thorvaldur Gylfason, a professor of economics at the University of Iceland and a former International Monetary Fund economist. ``A major political realignment will take place at the next election,'' which must be held by May 2011. That's not soon enough for many of Iceland's 320,000 citizens, as may become clear when the first opinion poll since the country's three biggest banks collapsed into receivership this month is released on Nov. 1.
Iceland needs $4 billion more in funding to help stabilise its ailing economy, its prime minister was quoted as saying on Monday. "It's hard to give an exact figure, but the situation would be good if we would get $4 billion more," Geir Haarde was quoted as saying in Finland's largest daily Helsingin Sanomat. Crisis-struck Iceland called on the International Monetary Fund for $2 billion in aid on Friday to help fix a broken banking system, restart currency trading and soften the blow from a withering economic downturn. The Washington-based lender said its staff in Reykjavik and Icelandic authorites had reached agreement on an economic programme that would be supported by the financial assistance. The deal still needs to be approved by the IMF board and Haarde said on Friday he expected it would take about 10 days for the review to take place.

• Download Full Emerging Markets Weekly

Published on  Mon, Oct 27 2008, 10:20 GMT

The Icelandic government was debating on Sunday

Mon, Oct 20 2008, 09:59 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

EMERGING MARKETS

Stock markets are close to bottoming as the global financial storm has beaten valuations down to very cheap levels, emerging markets investment guru Mark Mobius said on Monday. He said stocks may lose another 10-15 percent before rebounding. Emerging markets have lost almost half of their value since June, more than the MSCI's all-country stock index, which has fallen 40 percent. "We are getting close to bottoming. We will bounce up and down for a while; there are a lot of stale bulls waiting to get out. Markets will rally then get hit again, there may be another 10 to 15 percent downturn," Mobius, executive chairman of Templeton Asset Management, which has about $30 billion in assets under management, told Reuters in an interview. He said the current financial crisis was not the worst he had seen in emerging markets and disagreed with pundits forecasting a long and drawn-out recession or depression. "For us in emerging markets the 1997-98 Asian financial crisis was worse. Guys went from multimillionaires to selling sandwiches in the street. We haven't seen this yet," he said. He said he expected smart money would start coming in to markets as stock valuations had become very cheap. As always, he said, timing the precise bottom was difficult. "We are buying stocks with single-digit price-toearnings ratios, price-to-book little more than one, dividend yields of around 5 percent. Tupras refiner in Turkey, for example, now has a dividend yield of around 20 percent," Mobius said. Templeton's favourite emerging markets include China, India, Russia, Turkey and South Africa.

LATIN AMERICA

Argentina

Argentina may ease its defense of the peso, allowing for a 16 percent slide by year-end, to stem the loss of foreign reserves amid the worst global financial crisis since the Great Depression, JPMorgan Chase & Co. said. The central bank may opt for a one-time devaluation this year to 3.8 per dollar from 3.2086, JPMorgan economist Vladimir Werning wrote in a report. Werning had been forecasting the bank would let it reach 3.8 under a gradual depreciation, known as a ``crawling peg,'' by the end of next year.

Brazil

Brazilian companies' losses on derivatives after the local currency tumbled is ``totally absorbable and manageable,'' Fabio Barbosa, president of the Brazilian Federation of Banks, told Estado de S.Paulo. Brazilian banks are willing to finance companies in need of cash to pay for the losses, the Sao Paulo-based newspaper said, citing Barbosa. Potential losses don't pose ``a systemic'' risk to the country's economy, Barbosa told Estadao. Barbosa also said it is too ``soon'' to judge the impact of the measures announced by the central bank to free as much as 100 billion reais ($47.1 billion) and ease the credit crisis in Brazil, Estadao said.

Chile

Chile's government will auction $700 million in deposits this month to add liquidity to the banking system, Finance Minister Andres Velasco said in Santiago. The government will also provide $850 million in financing to small and medium size companies, Velasco told reporters. Chile's central bank froze interest rates on Oct. 9, citing economic instability. It plans to offer as much as $5 billion in foreign-currency swaps over the next six months, and will accept bank deposits as repo collateral, it said on Oct. 10.

Colombia

Colombia's government cut its 2009 growth forecast amid slowing global growth and lower commodity prices, Finance Minister Oscar Ivan Zuluaga said. The economy will expand 3 percent to 4 percent next year, less than the government's earlier forecast of 5 percent, Zuluaga told reporters in Bogota. Colombia still plans to sell $1 billion in bonds in foreign debt next year and also to borrow $1.4 billion from multilateral lenders in 2009, Zuluaga said. He said that should turbulence in global financial and credit markets disrupt the government's bond sale plans, Colombia could borrow the $1 billion rather than sell bonds in that amount under adverse market conditions.

Ecuador

Ecuador and Bolivia have decided not to take part in the deregulation of trade planned as part of an accord with the European Union, Ecuador's President Rafael Correa said. The four-member Andean Community, which includes Bolivia, Colombia, Ecuador, and Peru, will invite Chile to rejoin the group, Correa added at the end of a summit today in Guayaquil.

Mexico

Mexico's central bank kept its benchmark interest rate unchanged as policy makers balance concerns the economy will slow with predictions that inflation may accelerate again. The bank's five-member board, led by Governor Guillermo Ortiz, left the key lending rate at 8.25 percent. The decision matched forecasts by 18 of 20 economists surveyed by Bloomberg. Two analysts forecast a decrease of a quarter percentage point. While lower borrowing costs may help mitigate the impact of the worldwide credit crisis on a sagging economy, the central bank kept rates steady because a cut would further weaken the currency and trigger faster inflation, said Gabriel Casillas, an economist at Banco UBS Pactual in Mexico City.
Mexico's industrial production fell for the fourth consecutive month in August as output of clothes, metal products and leather declined and fewer large buildings were constructed. Industrial activity sank 1.6 percent in August from the same month a year earlier, the national statistics agency said.

Peru

Peruvian President Alan Garcia on Tuesday swore in a new cabinet after the resignation of all the 17ministers over corruption allegations. Yehude Simon, leftist former governor of Lambayeque province, replaces Jorge del Castillo as prime minister. Ten of the previous cabinet members, including the foreign, defense, trade and tourism ministers, stayed, while six others were replaced. The new ministerial portfolios include Health Minister Oscar Ugarte, Agriculture Minister Carlos Leyton, Interior Minister Remigio Hernani, Production Minister Elena Conterno, Energy and Mines Minister Pedro Sanchez and Women and Social Promotion Minister Carmen Vildoso. Four audio tapes emerged earlier this month linking members of the ruling party to a plan aimed at steering lucrative petroleum contracts to a Norwegian oil company in exchange for bribes. Following the eruption of the scandal, the cabinet led by Castillo resigned en masse.

Venezuela

Venezuela's government had a 3.37 billion bolivar ($1.57 billion) budget deficit in July, according to a budget report published on the central bank's Web site. The government posted a 6.64 billion-bolivar deficit in the first seven months of the year and has posted deficits in six of those months, according to the report. The bank's monthly spending report, which is based on information provided by the Finance Ministry, doesn't include offbudget spending by the government's National Development Fund or social spending by state oil company Petroleos de Venezuela SA.
JPMorgan Chase & Co. cut its 2009 economic growth forecast for Venezuela to 2.5 percent from 3.5 percent on lower oil prices and expectations of a global recession. Should oil prices remain below $90 next year, Venezuela's current account surplus, expected to close the year at 14 percent of gross domestic product, could move into a deficit in 2009, analyst Ben Ramsey wrote in a report published. JPMorgan expects a 30 percent devaluation of the bolivar in 2009 to 2.75 bolivars per dollar, from the current peg of 2.15. While politically unpopular, a devaluation would ``help relieve the pressure on the fiscal deficit, and the magnitude of this projected devaluation may increase depending on how low oil prices ultimately go,'' Ramsey wrote.

AFRICA & MIDDLE EAST

South Africa

South Africa's former defence minister has announced a breakaway party will be launched, splitting the ruling ANC and challenging its years of dominance. "We are going to go and set up a party," Mosiuoa Lekota said in remarks broadcast on South Africa's SAfm radio. It would be set up at a national congress he has called for Nov. 2, he said. The move, which was widely expected, is likely to raise tensions in the biggest political shake-up in the 96-year history of the ANC which has ruled since the end of apartheid in 1994. It will also raise questions about the political direction of Africa's biggest economy. SAfm said Lekota made the announcement while addressing supporters at the Vista branch of the University of the Free State. The party will adopt its constitution at the convention, said the radio station. Lekota, who was suspended from the ANC for threatening to form a new party, has made a wide appeal to South Africans to attend the national congress to discuss what he says are major flaws in the ANC leadership and plan future strategy. "At the convention people must decide what they want to do with themselves. There has to be debate, what will you call it (the party)," said Lekota. "Obviously there will be lots of names and so on. We say to the people 'you go back to your constituency and see which names, which colours, which emblems."
South Africa's government expects the economy to be spared from the worst of the fallout from the current global financial turmoil and does not see an immediate need to tighten lending regulations. ``We are going to be affected, but we think we will still be able to register some decent growth,'' Trade Minister Mandisi Mpahlwa told reporters near the southern town of Mossel Bay, after meeting a panel of business executives who advise the government on economic matters. ``In South Africa, there is strong regulation of banks. We don't have immediate pressures in South Africa to change anything.''

ASIA

China

China's economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports. Gross domestic product rose 9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing. That was less than any of the 12 estimates in a Bloomberg News survey and the 10.1 percent gain in the previous three months. The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting. The cabinet announced tax cuts for exporters and increased infrastructure investment and the central bank may be poised to cut interest rates for the third time this year.

Indonesia

Indonesia's rupiah will slide 16 percent within six months as foreign-exchange reserves approaching ``alarming levels'' force the central bank to rein in intervention, Royal Bank of Scotland Group Plc predicts. The rupiah, which in September completed its biggest quarterly loss in three years, will tumble to 11,700 per dollar by the end of March, the U.K.'s fourth-largest bank by market value said in a research report sent to clients. The country's reserves dropped $3.8 billion to $56.8 billion in the seven weeks through Sept. 12 as Bank Indonesia sold foreign exchange to support the local currency.
Indonesia, where banks control 79 percent of financial assets, passed a rule to give the central bank and deposit guarantee agency more powers to decide on bailing out lenders and insurance companies. ``This government decree is to anticipate any financial crisis and provide legal basis for the government to act,'' central bank Governor Boediono told reporters in Jakarta. The decree was ``urgent.'' The new regulations will enable authorities in Indonesia, which spent more than 450 trillion rupiah ($45 billion) bailing out lenders in the Asian financial crisis a decade ago, to fund banks in need of liquidity without legal concerns.

Pakistan

Pakistan may be forced to seek a loan from the International Monetary Fund to prevent the nation defaulting on its debt, according to a government official. South Asia's second-largest economy, which has seen its foreign reserves plunge more than 74 percent to about $4.3 billion in the past year, is also seeking financial support from the World Bank and the Asian Development Bank, said Shaukat Tarin, financial adviser to the prime minister. The country has $3 billion in debt-servicing costs in the coming year. ``They are going to have to bite the bullet and sign for the IMF,'' said David Fernandez, the Singapore-based head of emerging markets research at JPMorgan Chase & Co. ``It has to come now.''

Philippines

Philippine inflation may have peaked because crude oil prices have eased, central bank governor Amando Tetangco said. ``Inflation expectations have declined and oil prices have similarly fallen, so we think we have seen the peak of inflation,'' Tetangco said by e-mail. Inflation slowed to 11.9 percent in September from a year earlier. The Philippines has been ``fairly insulated'' from the global financial crisis because ``exposure to troubled banks is minimal,'' Tetangco said. Remittances from Filipinos working overseas are expected ``to be steady,'' he said.
The Philippine central bank may cut the amount it requires lenders to set aside as reserves to boost liquidity in the financial system, effectively lowering borrowing costs, to help spur growth. ``Instead of communicating an easy monetary policy to the market by reducing policy rates, an alternative is to reduce the reserve requirement to infuse liquidity,'' said Deputy Governor Diwa Guinigundo in an interview in Singapore. Every one percentage point reduction in the reserve requirement for banks will free up about 30 billion pesos ($624 million) of cash into the system, Guinigundo said.

South Korea

South Korea's won and stocks rose after the government announced Asia's biggest financial rescue package to open access to overseas credit markets and allay concern of a recession. The won climbed 2.7 percent to 1,299 per dollar at 1:41 p.m. in Seoul. The currency has risen 6 percent since Oct. 16, when it suffered its biggest oneday decline since South Korea required a bailout from the International Monetary Fund in 1997. The benchmark Kospi stock index gained 1.3 percent. South Korea, struggling with Asia's worst-performing currency and a stock market that has lost 37 percent this year, guaranteed $100 billion of lenders' foreign-currency debt and said it will provide $30 billion in dollars to banks. The plan, equal to about 14 percent of gross domestic product, was mapped out in an emergency meeting after Standard & Poor's said the nation's banks may have difficulty securing overseas funds. ``We can expect to see a significant stabilization of the financial markets,'' said Kim Young Il, who oversees the equivalent of $6.5 billion as head of equities at Korea Investment Trust Management Co. in Seoul. ``But it will take time for the real economy to improve, and that means investor sentiment won't immediately show a turn for the better.'' The currency gained as much as 8 percent before trimming its advance, according to Seoul Money Brokerage Services Ltd. The won plunged 9.7 percent Oct. 16 after S&P said there's a greater than 50 percent chance banks won't be able to find foreign funding, threatening their ability to repay short-term debt.

EMERGING EUROPE & CIS

Emerging market countries are turning to the International Monetary Fund to help shore up confidence in their financial systems strained by a global credit crunch. Hungary, Ukraine, Serbia and Iceland all signaled to the IMF during weekend meetings of global finance leaders in Washington they are considering going to the Fund. Unlike in previous crises in many emerging markets, this is a financial sector crisis as opposed to the balance of payments troubles of the past, and the IMF has urged quick and coordinated actions to limit the damage. As governments worldwide have pumped more cash into money markets to restart interbank lending, the U.S. outlined a plan to invest $250 bln in its banks but there were still doubts whether it would revive confidence and avert a global recession. "We have about six or seven countries in the pipeline," a senior IMF official told Reuters, speaking on condition of anonymity. "I wouldn't be surprised if there were about a dozen countries after a few months," the official added. Tighter credit conditions and fears that bank guarantees in developed economies could see more private capital flow out of emerging market assets has policymakers worried. The IMF said on Monday it was ready to offer financial and technical help to Hungary, who has a stable banking system but could find it harder to finance its large debt load as credit tightens. Serbia said it would ask the IMF for a new deal, but an agreement is unlikely to be announced before IMF officials visit Belgrade next month, senior government officials said. "We are certainly not in a group of emergency cases, such as Hungary," one official told Reuters. "But we need the agreement for longer-term stability." An IMF official in Washington told Reuters on Monday that Ukraine had sought IMF help, and press reports on Tuesday said an IMF mission is expected in the capital Kiev shortly.

Azerbaijan

Azerbaijan's incumbent President, Ilham Aliyev, won a total of 88.73% of the votes cast in last week's election, according to the final results published Sunday by the central electoral commission. Six other candidates in the oil-rich former Soviet state - all loyal to the authorities - lagged far behind, with none of them getting more than 3% of votes, said the head of the electoral commission, Mazakhir Panakhov. Second-place Iqbal Agazade won 2.86%, while Fazil Gazanfaroglou trailed in third with 2.47%, Panakhov added. The commission's results are expected to be ratified by the constitutional court within the next four days, paving the way for Aliyev to be sworn in for a second term in office. The Organization for Co-operation and Security in Europe, a democracy watchdog, has said that the poll last Wednesday did not reflect democratic principles although the United States welcomed "progress" compared to previous ballots. The 46-year-old Aliyev was first elected in 2003 with some 77% of votes. He succeeded his father, Heydar Aliyev, who died the same year after leading the former Soviet republic for a decade.

Hungary

Standard & Poor's on Wednesday said it has put the credit ratings of Hungary and Ukraine on review for a possible downgrade due to deteriorating financial sector conditions in both countries. S&P placed Hungary's "BBB+" foreign-currency ratings on "creditwatch negative" due to concerns over mounting financial-sector funding pressures and their potential to raise general government debt substantially, from its current level of 67 percent of GDP. The ratings agency said it will likely make a decision on Hungary's ratings before the end of the year, after it studies the effectiveness and the cost of a package announced by the central bank to shore up the financial system. Ukraine's "B+" long-term foreign-currency debt rating was also placed on "creditwatch negative," as S&P fears a deteriorating economic situation and associated exchange-rate depreciation may hurt the country's financial-sector asset quality. A decision about Ukraine's ratings should be made this month, S&P said.

Fitch Ratings has revised the Outlooks on the Republic of Hungary's Long-term Issuer Default ratings (IDRs) to Negative from Stable. Its ratings are affirmed at foreign currency IDR 'BBB+', Short-term foreign currency IDR 'F2', and Long-term local currency IDR 'A-' (A minus). Its Country Ceiling is affirmed at 'A+'. "The revision of Outlook reflects Fitch's view that shocks from global financial turbulence and the likelihood of recession in the euro area have heightened downside credit risk given Hungary's high external debt stock, wide current account deficit and large external financing requirement," said David Heslam, Director in Fitch's sovereign team. The deterioration in global, and particularly European, financial conditions have heightened the risks for economies with large external financing needs and reliance on bank financing. Hungary's gross external debt amounts to 99% of GDP, one of the highest levels in central and eastern Europe. Financing of the current account deficit - which stood at 6.4% of GDP in 2007 (based on revised official statistics) - is sensitive to strains in international capital and banking markets, with a significant proportion of financing dependent on flows to local banks from their western European parents. Four domestic banks have announced that they are to restrict growth in foreign currency loans. Heightened risk aversion has led to strains in government debt and inter-bank markets and to a weakening of the HUF, which if exacerbated would increase debt servicing requirements and place strains on loan portfolios of the domestic banking system, where foreign currency-denominated loans account for over half of private sector credit. In addition, the global economic slowdown, and particularly the likelihood of a recession in the euro area - the destination for over half of Hungary's exports - has weakened an already subdued growth outlook, increasing the challenges facing the government in its attempts to continue to narrow the fiscal deficit. At 66% of GDP the government's gross debt remains high relative to the 'BBB' median of 28% and low economic growth will make it difficult for the debt burden to fall, while external markets are an important source of financing, including through substantial non-resident holdings of HUF-denominated debt. Fitch notes that the authorities' response to recent events has been strong. The National Bank of Hungary has announced a EUR5bn swap facility with the European Central Bank, while the government has reduced its deficit target to 3.4% of GDP in 2008 and 2.9% in 2009, from original targets of 3.8% and 3.2%, respectively. "Hungary's credit ratings are supported by its robust institutional fundamentals, relatively rich and diverse economy, strong debt management capacity and untarnished modern debt service record." Political and social stability is anchored by membership of the European Union. At USD13,750 (at market exchange rates), income per head is high relative to the 'BBB' median of USD6,900.
Hungary is fighting to persuade international markets it isn't the next Iceland. Hungarian authorities stepped up their efforts at the weekend to reassure nervous financial markets that the country can ride out the turmoil in the global banking system. Prime Minister Ferenc Gyurcsany said Saturday he will talk to banks about helping out mortgage borrowers with foreign-currency loans whose monthly payments are rising as the forint, Hungary's currency, falls. The government also presented plans to cut its budget deficit faster than planned this year and next, an attempt to show that the country has become more fiscally disciplined than a few years ago, when ballooning budget deficits scared markets.

Kazakhstan

KazMunaiGaz National Co., a Kazakh state-owned oil and gas company, said it sales in the first nine months of 2008 doubled from a year earlier as output and refining increased. Consolidated revenue jumped to 2.355 trillion tenge ($19.7 billion) in January-September period, the Astana-based company said in an e-mailed statement. KazMunaiGaz's oil production in the period rose 8.5 percent from a year earlier to 13.3 million tons, the company said.

Romania

The Romanian leu firmed 3.3 percent against the euro in late trading on Friday, reaching a three-week high of 3.6483, bolstered by a flurry of stop-loss trades by foreign players, dealers said. "Some U.S hedge funds from New York have aggressively bought the leu in a stop-loss move after the U.S. markets opening," said one dealer with a foreign bank. The unit hit its weakest level in almost four years at 3.986 on Oct. 6. At 1415 GMT, the leu traded at 3.6590 per euro after touching 3.6483, its highest level in three weeks, and compared with Thursday's close of 3.7733. Overnight rates were indicated at 19/46 percent on Friday, their highest level since April 2007.

Russia

Russia's international reserves, the world's third largest, fell $15.5 billion last week after the central bank sold currency to prop up the ruble as investors pulled money out of the country. The value of the reserves slipped to $530.6 billion in the week ended Oct. 10, after a $16.7 billion decline the previous week, the biggest this year, the central Bank said in an e-mailed statement today. The war with Georgia, slumping commodities prices and the credit crisis prompted investors to withdraw about $74 billion from Russia since Aug. 1, according to BNP Paribas SA, sending the ruble 3.5 percent lower against its currency basket. Bank Rossii sold about $12 billion last week, the most since Jan. 1, to stop the ruble weakening beyond its trading band, says Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow.
Vladimir Putin came to power in 2000 vowing to destroy Russia's oligarchs ``as a class.'' Within two years, he'd driven two into exile and imprisoned another. Now, he may use the global markets meltdown to finish the job. The $50 billion that the prime minister and President Dmitry Medvedev have pledged to lend cash-strapped companies will extend state control over business leaders. Billionaires seeking bailouts -- including Oleg Deripaska, Russia's richest man, and Mikhail Fridman -- will have to give authorities veto power over their companies' financing decisions. ``This will give the state more leverage over the country's biggest companies and main industries,'' said Chris Weafer, chief strategist at UralSib Financial Corp in Moscow. ``In 2008, there is only one real oligarch: the state.'' All this marks a reversal from a decade ago, when oligarchs bankrolled Boris Yeltsin's almost-insolvent government. As recently as April, Russia's 100 wealthiest citizens had a combined fortune equivalent to about a third of the economy, Forbes magazine estimated. The nation's 25 wealthiest businessmen have seen their worth shrink by $230 billion, or 62 percent, according to Bloomberg calculations. And Putin controls the strings on the biggest remaining purse -- $531 billion in government reserves, which he is doling out through state-run Vnesheconombank, or VEB, where he presides as chairman of the supervisory board.

Turkey

Moody’s said that the Turkish banking system has a stable to negative outlook on the basis that the current turmoil in financial markets will impact Turkey. Moody's report stated that the banking system was proving to be profitable and solid asset quality mainly driven by the slowing economy. However Turkey's vulnerability to volatility and shocks could negatively impact banking conditions. Moody's recently upgraded the ratings on one state owned bank and the outlook on 3 other banks. Moody's said that asset quality could fall as a result of the fall in loan growth and the slowing domestic economy. Moody's highlighted that if market conditions continue to weaken then this would restrict the amount of credit available to Turkish companies and lead to negative ratings for Turkish banks.
Turkey's current-account deficit widened in August from a year earlier as more expensive oil and gas drove up the value of imports. The deficit expanded to $3.3 billion from a revised $1.6 billion in August last year, the central bank in Ankara said on its Web site. The gap was forecast at $3.3 billion, according to the median estimate of 12 economists in a Bloomberg e-mail survey. The widening deficit comes as the global credit crisis threatens to restrict the flow of investment to Turkey and make foreign credit more expensive.

Ukraine

Fitch on Friday cut its long-term foreign and local currency issuer default rating on Ukraine to "B+" from "BB-", saying that the outlook for the country remained negative on the rising risks to its financial system. It said it was unconvinced that depositors will remain confident despite central measures barring early withdrawals of term deposits and a potential credit of up to $14 billion from the International Monetary Fund. "The risk of a financial crisis in Ukraine involving a large depreciation of the currency, further stress in the banking system and significant damage to Ukraine's real economy is significant and rising," director in Fitch's Sovereign Group Andrew Colquhoun said in a statement. "Nevertheless, Fitch believes risks to Ukraine's ability to meet its sovereign obligations remain low in the near term owing to the sovereign's modest refinancing needs," he said. Ukraine is discussing potential assistance from the IMF and a presidential aide has said the Washington-based international agency is prepared to extend credit of up to $14 billion to the country.
Ukraine's Prime Minister Yulia Tymoshenko expressed confidence on Monday that talks with the International Monetary Fund would prove successful and that the country would secure "substantial" financial assistance. A statement on the government Web site said Tymoshenko had held a new round of talks on Monday morning with an IMF mission in Kiev since last week. "Prime Minister Yulia Tymoshenko stressed that the talks would come to a successful conclusion and that it was very likely Ukraine would receive substantial financial assistance," the statement said. Ukrainian officials, after launching talks with the IMF last week, said the Fund was prepared to provide up to $14 billion to help stabilise the country's financial system. Ukraine has suffered limited effects from the world wide financial crisis, but its hryvnia currency has weakened and the central bank has ploughed new sums into banks for refinancing.

INDUSTRIAL COUNTRIES

Iceland

The Icelandic government was debating on Sunday whether it would apply for aid from the International Monetary Fund (IMF), with a decision expected within the next day, a minister told a local newspaper. The government had received IMF's conditions for aid and was meeting to decide whether those conditions are acceptable, daily Frettabladid said in its Monday edition. "This has got that far that we are analyzing the conditions, costs and benefits of how this would look like," Bjorgvin Sigurdsson, minister of trade and commerce, told the daily regarding the talks between the government and the IMF. Details of IMF's conditions were not made public. Iceland has also negotiated with Russia about a loan to help the island state after it became the most serious state victim of the global credit crunch.

• Download Full Emerging Markets Weekly

Published on  Mon, Oct 20 2008, 09:59 GMT

As the global financial crisis sends many emerging markets into tailspin

Mon, Oct 13 2008, 10:35 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Brazil

Brazil's inflation rate will end 2009 at 4.85 percent, less than the 4.90 percent forecast last week, according to a weekly central bank survey of economists. Economists covering Brazil's economy lowered their 2009 inflation forecast for a fourth week and kept their 2008 forecast unchanged at 6.14 percent, according to the Oct. 3 survey of about 100 economists published today on the bank's Web site. The annual inflation rate 12 months from now will be 5.15 percent, up from the 5.14 percent forecast last week, the survey showed.
Brazil canceled a local bond sale for the first time in seven months, a sign the global credit crisis is beginning to squeeze the finances of Latin American countries. The Treasury shelved an auction of inflation-linked bonds, known as NTN-Bs, as a tumble in the currency throttled demand for local assets. The Treasury hadn't said how much it planned to sell of the bonds. ``We are in the middle of a crisis of confidence that's everywhere and is affecting everyone,'' said Jose Mauro Cardoso Delella, chief economist at Itau Asset Management.

Chile

Chile's economy grew less than economists expected in August as mining output shrank and wholesale sales declined. Economic activity expanded 2.4 percent in the 12 months through August, the central bank said on its Web site. The median estimate of 12 economists in a Bloomberg survey was that the economy would expand 3.6 percent from a year ago.

Colombia

Colombia eliminated controls on foreign investment in fixed income securities in a bid to increase access to capital and prevent swings in the peso as the global economic crisis threatens investment inflows. The controls, imposed in May 2007 to stem gains in the peso, were always intended to be temporary, President Alvaro Uribe said in a statement posted on the presidential Web site last night. ``In a world economic crisis we have to defend the Colombian economy, we have to defend employment and the income of Colombians,'' Uribe said.

Costa Rica

Standard & Poor's Ratings Services said that it revised its outlook on the Republic of Costa Rica to stable from positive. Standard & Poor's also said that it affirmed its 'BB/B' foreign-currency and 'BB+/B' local-currency sovereign credit ratings on the republic. In addition, Standard & Poor's affirmed its 'BBB-' transfer and convertibility assessment of Costa Rica. Standard & Poor's also affirmed its 'BB+' long-term debt ratings on Costa Rica's foreign-currency senior unsecured debt. The foreign-currency debt ratings are one notch above the credit rating to reflect both default and recovery prospects. The recovery rating of'2' remains unchanged. The '2' rating indicates an expectation for substantial (70%-90%) recovery in the event of a payment default.

Ecuador

Ecuadorean President Rafael Correa said he may expel foreign oil producers, including Spain's biggest energy company, Repsol YPF, and Brazil's state-owned Petroleo Brasileiro SA, because of declining production. The companies, particularly Petrobras, as the Rio de Janeiro-based Brazilian company is known, have dragged their feet in contract negotiations in which Correa wants a greater share of oil income, he said in his first regular Saturday address after almost two-thirds of voters approved a new constitution he had proposed.

Honduras

Standard & Poor's Ratings Services said that it assigned its 'B+' long-term and 'B' short-term foreign- and localcurrency sovereign credit ratings to the Republic of Honduras. Standard & Poor's also said that it assigned a transfer and convertibility assessment of 'BB-' to the sovereign. The outlook on Honduras is stable. Honduras is the 119th sovereign rated by Standard & Poor's. "The ratings are supported by Honduras's low debt and debtservice burdens as well as its good prospects for long-term economic growth and diversification of the economy," noted Standard & Poor's credit analyst Joydeep Mukherji.

Mexico

Mexican President Felipe Calderon proposed a stimulus package worth 1 percent of gross domestic product that includes spending on energy, infrastructure and education to help the economy weather a global credit crisis. The president sent an initiative to Congress that would allow the government to spend an extra 65.1 billion pesos ($5.26 billion). The plan, which includes building Mexico's first refinery in almost 30 years, would also eliminate some tariffs and change laws to ease bottlenecks in infrastructure spending.

Venezuela

President Hugo Chavez has figured out how to use Venezuela's vast oil reserves to increase his regional influence while diminishing U.S. clout: He all but gives it away. The self-proclaimed socialist revolutionary is allowing impoverished U.S. allies such as Honduras and the Dominican Republic to buy discounted oil with low-interest loans. Then he rebates the revenue back to those countries in the form of aid - - attached to strings he controls.

AFRICA & MIDDLE EAST

Coins clank softly and Ugandan shillings shuffle their way through counting machines at a foreign exchange bureau in downtown Kampala. Yet in the last few months, the money-flow has been dwindling, with cash sent from Ugandans abroad via the bureau down by more than half to about $35,000 per day. "August was the worst month. September was bad, and October is going bad, bad, bad," said Igal Mohamed Ali, managing director of Bicco Forex Bureau, which is a conduit for money from Ugandans living in the United Kingdom. Remittances to Africa, worth $40 billion a year according to the United Nations, could be an early casualty of the global financial crisis. Though traditionally resilient even at times of crisis, remittance flows are bound to suffer if Africans working abroad have to tighten their belts or lose their jobs. "Remittances were keeping a very, very strong anchor under us, but I think we are going to have a dramatic slowdown in remittances because I think the second round effects (of the crisis) are going to mean a lot of lay-offs," Kenyan financial analyst Aly Khan Satchu said. That could deliver a heavy blow to parts of Africa at a time the continent had been enjoying its fastest growth in decades -- an annual average of over 6 percent for the past five years.

Egypt

Egyptian banks are unaffected by the banking crisis gripping the U.S. and Europe and Egyptian companies are performing well even after the recent collapse in the local stock market, said Rachid Mohamed Rachid, Egypt's Trade & Industry Minister. ``At the moment, banks in Egypt have strong liquidity,'' said Rachid in an e-mailed statement. ``In relation to the stock market, the current drop in the performance of the Egypt Stock Exchange has little to do with the actual valuations of the listed Egyptian companies.''

South Africa

South African consumer confidence rose in the third quarter as the prospect of interest rates cuts next year and lower fuel prices eased concern about the economy, a survey showed. The FNB/BER consumer confidence index rose 5 points to minus 1 from minus 6 in the second quarter, First National Bank and the Bureau for Economic Research said in an e-mailed statement.
South Africa's ruling African National Congress said Mosiuoa Lekota failed to attend a scheduled meeting with party leaders to discuss disputes that may lead to a split in the movement. The meeting was arranged for 10 a.m. local time with ANC Treasurer-General Matthews Phosa, the party said in an e-mailed statement. Lekota didn't give the ANC a reason why he abandoned the meeting, it added. Lekota, a supporter of former President Thabo Mbeki who was ousted last month, said he was unhappy with the way the ANC was conducting itself under the leadership of Jacob Zuma, including a lack of respect for the law. Lekota suggested that he and other former leaders may form a rival party to the ANC, which led an eight-decade fight to end apartheid in South Africa.
South Africa's rand clawed back some ground against the dollar on Monday, tracking gains in high yielding currencies as moves by global leaders to rescue banks hit by the credit crisis helped calm rattled investor nerves. By 0640 GMT, before the market opening at 0700 GMT, the blue chip Top-40 December futures contract was up 4.85 percent, suggesting a similar recovery for the local bourse after stocks took a hammering last week. The rand last traded 3.23 percent firmer at 9.1350 versus the dollar, compared to Friday's New York close of 9.44. "The rand has strengthened quite a bit from this morning on the back of positive sentiment after suggestions of adding liquidity to help struggling banks," a Johannesburg trader said. "But it's generally going to be very, very choppy. It's going to be another very wild day, I think." High-yielding currencies hit by risk aversion in recent weeks rallied on Monday as European officials offered to guarantee some bank debt and inject public funds into individual banks if necessary.

ASIA

China

China cut interest rates for the second time in three weeks as the global financial crisis threatened to undermine the world's fourth-largest economy. The People's Bank of China said it would lower the key one- year lending rate by 27 basis points to 6.93 percent, and the one-year deposit rate by the same amount to 3.87 percent according to a statement on its Web site. It also cut the proportion of deposits that banks must set aside by 50 basis points effective Oct. 15.
Charles Collyns, deputy director of research at the International Monetary Fund, comments on China's economy during a press briefing in Washington. His comments were taken from a transcript. The IMF yesterday cut its growth forecast for China, the world's fourth-largest economy, to 9.3 percent from 9.8 percent. On the outlook for growth: ``We are expecting growth to slow in China, in part because of the slowdown in export growth to the rest of the world. And in part because of a slowdown in investment, particularly in the real estate sector.

India

India's capital markets regulator lifted curbs on overseas investors imposed a year ago, in a bid to stem record sales by offshore funds that have triggered a 42 percent slide in the benchmark index this year. A requirement forcing investors to register in India before buying shares and limits on offshore derivatives that were imposed in October will be lifted with immediate effect, C.B. Bhave, chairman of the Securities & Exchange Board of India, told reporters after a board meeting in Mumbai.

Indonesia

Indonesia's central bank raised its policy rate to slow inflation and boost the rupiah after the nation's stock index plunged 10 percent amid a global credit crisis. Bank Indonesia Governor Boediono and his seven colleagues raised the BI Rate to 9.5 percent, from 9.25 percent. Fourteen of 19 economists surveyed by Bloomberg News forecast today's move, with five expecting no change.

Philippines

The Philippine central bank has room to reduce borrowing costs after U.S. and European policy makers cut rates and the Southeast Asian nation's inflation slowed from a 16- year high, Governor Amando Tetangco said. ``The move, taken together with improved inflation expectations, gives us greater monetary policy space,'' Tetangco said in a mobile-phone message from Washington. The coordinated rate cuts will also have a ``positive effect'' on markets including Asia, he said.

EMERGING EUROPE & CIS

As the global financial crisis sends many emerging markets into tailspin, Eastern European economies are seen as most at risk from unstable exchange rates and a resulting foreign debt exposure of indebted corporates. Latvia and Ukraine are seeing their currencies strain against targeted trading bands and debt insurance costs soar. And with Iceland's shocking plunge into a financial crisis this week intensifying market worries over other emerging market flashpoints, there has been widespread scrutiny of countries running current account deficits with large foreign debt. South Korea and Pakistan are feeling the heat in Asia as their external deficits flag concern. And Latin America, even though regional bourses were down more than 10 percent on Wednesday, has much healthier external national accounts. But Central and Eastern Europe sticks out and the International Monetary Fund on Wednesday forecast the collective current account deficit for the region to rise to a whopping 7.2 percent of total gross domestic product from 7.1 percent this year and more than twice the shortfall as recently as 2002. "Eastern Europe is the most exposed region among emerging economies. These countries have large external financing needs and the global environment looks more challenging than ever," said Edward Parker, head of Emerging European sovereigns at Fitch Ratings. Brown Brothers Harriman data showed Bulgarian and Estonian external debt at 101 percent of GDP, with Hungary's debt at 96 percent. "Virtually all (Eastern European economies) are running current account deficits...many have very high external debt/GDP ratios. In this region, the International Monetary Fund may end up playing a significant role, particularly with the smaller Baltic countries," it said. A Credit Suisse table of countries showing most macroeconomic risk leads with Iceland, following by Bulgaria, Estonia, Lithuania, Ukraine, Latvia, Romania and Hungary. South Africa is 10th, below the United Kingdom.

Hungary

The International Monetary Fund is ready to offer financial and technical help to Hungary, the European Union said on Monday, expressing its support for the new member state's efforts to overcome its financial woes. "The Ecofin (EU finance ministers) welcomes the readiness of the IMF to consider providing technical and financial assistance as needed to Hungary," the executive European Commission and the EU's French presidency said in a joint statement. They said they were following the situation on Hungary's financial markets closely following severe pressure on the forint and Hungarian bonds on Friday. Hungary has been hit hard by the global financial crisis because it has one of the most fragile economies in Europe due to high budget and current account deficits and heavy reliance on external financing, analysts say. To reduce fragility, Budapest announced plans to cut this year's budget deficit to 3.4 percent of gross domestic product from an earlier projection of 3.8 percent and cut it further to 2.9 percent next year, below the earlier planned 3.2 percent. "We are committed to use all available instruments with a view to supporting Hungary in steering its economy through these difficult times," the Commission and presidency said, adding the country had improved its macro-economic policies since 2006. The EU authorities said they were in contact with Hungary to ensure that any conditions attached to possible IMF aid were consistent with economic goal agreed with the EU.

Lithuania

Lithuania's main centre-right opposition was set to win a parliamentary election and a new party headed by a TV talent show host was a surprise second, heralding tough coalition talks, results showed on Monday. The vote took place amid anger over double digit inflation and fears the once high flying economy would slide in the global financial crisis. A newly assertive Russia has also been a focus of concern for some in the former Soviet republic. "All the ruling parties were punished and the opposition and new forces were preferred by the voters," said Virgis Valentinavicius, editor-in-chief of news portal Alfa.lt. With nearly all ballots counted from Sunday's election in the EU and NATO member country, the opposition centre-right Homeland Union Party led with 18.51 percent of the vote for party lists and in 25 of 71 single mandate areas. Homeland Union's leader, former Prime Minister Andrius Kubilius, said he was ready to work with most other parties but analysts say he will have a hard time forming a coalition from the disparate groupings, most of which are broadly left-leaning. A second run-off for single mandate constituencies is due on Oct. 26, after which the parliament line-up will be clear. The Homeland Union is a traditional tax-cutting conservative party but it also says the budget deficit could rise. The party is the one which most raises the issue of Russia as a threat to Lithuania. Kubilius also backs the launch of the euro, which analysts have said could happen in 2011 or 2012. The ruling Social Democrats were in fourth place in party lists, but second in single mandate areas. They were ahead of the Labour Party of Russian-born millionaire Viktor Uspaskich, nicknamed the "Gherkin King" after one of his businesses.

Romania

Romanian President Traian Basescu urged on Friday for the government, parliament and trade unions, clashing over wage claims in the run up to the Nov. 30 election, to minimise the impact of the global financial crisis. Basescu's speech came as Prime Minister Calin Tariceanu and major trade unions met to discuss pay increases after parliament cleared a 50 percent wage hike in teachers' wages last month. The decision, which still needs to be approved by Basescu and which the centrist minority cabinet opposes, saying it will lead to a huge budget deficit in 2009, has triggered a flurry of similar wage demands from most of the public sector. "The impact of a potential lack of responsibility of the government, parliament and unions could be that of bringing the (international) crisis here," Basescu said. "We have the potential to be minimally affected by the international crisis if we behave responsibly." Pensions and wages have become a key campaign issue ahead of the Nov. 30 parliamentary vote, and all major parties, including the ruling Liberals, have promised to boost incomes. Analysts say wage hikes could further fuel rampant consumption and imports and exacerbate risks to an economy already made vulnerable by its vast current account deficit and high foreign currency borrowing. Basescu also reiterated assurances made earlier this week by central bankers that Romanian banks are safe from the world crisis as a result of restrictive monetary policy.

Russia

Russia accused Georgia of committing terrorism and seeking to provoke a new conflict between the countries after a series of explosions and assassination attempts during the past four days. Georgia rejected the claim. Russia will still observe an agreement signed by Presidents Dmitry Medvedev of Russia and Nicolas Sarkozy of France to withdraw its troops from Georgia by Oct. 10, the Foreign Ministry said in a statement posted on its Web site.
Moscow's government plans to spend as much as $2 billion bailing out developers who are struggling to fund projects in the world's third costliest property market. The city is in talks to buy land and apartments from construction companies in need of cash, Deputy Mayor Yuri Roslyak said, according to his spokesman, Leonid Bratkin.
Russia's economic growth will be hit by the global credit crunch and some neighboring economies in the Commonwealth of Independent States will also slow next year, the International Monetary Fund said on Wednesday. "Growth is set to weaken appreciably, reflecting slowing world demand and tightening financial conditions," the IMF said in its latest World Economic Outlook. It forecast Russian growth of 5.5 percent in 2009 down from a projected 7 percent this year while Ukraine's economic expansion will slow to 2.5 percent next year from 6.4 percent. High world prices for food and fuel have contributed significantly to inflation pressures across the region, with inflation of 14 percent seen in Russia this year. "Thus, there are concerns about overheating, with output consistently above potential and labor markets remaining tight," the IMF said.

Turkey

Turkish Prime Minister Tayyip Erdogan is widely expected to reshuffle his government, but political and economic analysts say big changes in economic policy are unlikely. Although Turkish media suggest the finance and energy ministers could be replaced, the analysts do not expect a reshuffle would give any new impetus to a reform drive needed to secure European Union membership. Erdogan has said nothing about a reshuffle, but Turkish media expected changes following allegations of high-level corruption and because of the ruling AK party's long-running battle with secularists over the role of Islam. Erdogan is expected to keep a grip on policy, including combating the global financial crisis, signing a new deal with the International Monetary Fund and the drive to join the EU. "With the global crisis hitting the markets we are not expecting a hypothetical cabinet reshuffle to bring changes to the government's macroeconomic policies," said Ozgur Altug from Raymond James Securities in Istanbul.
The Turkish lira rose 3 percent against the dollar on Monday and stocks opened 5 percent higher after governments around the world agreed bank bailouts worth hundreds of billions of dollars, restoring some confidence. By 0654 GMT Turkey's lira traded at 1.3840 against the dollar in interbank trade, as most Asian markets reacted positively to news of bank bailouts and increasingly drastic measures to open up frozen credit markets. The currency had fallen to a 19-month low on Friday and closed at 1.4330 as investors dumped assets worldwide. "This new united move of rich nations should bring some calm to the markets," said Tera stockbrokers in a research note. Istanbul's main stock exchange index traded around 5 percent higher at 29903.03 points after slumping to levels not seen for three years on panic selling on Friday, when it closed down 7.72 percent. The index lost around 17 percent of its value last week as investors fled from emerging markets into safe haven investments, and Turkish stocks have now almost halved in value since the start of this year. Turkish banking stocks outperformed the index, rising around 6 percent, led by the most actively traded stocks, Garanti up 6.25 percent and Is Bank, up 3.9 percent.

Ukraine

Prominvestbank, Ukraine's sixth-largest lender by assets, had its ratings cut three steps by Moody's after the National Bank of Ukraine took control of management and assets. Moody's cut the Kiev-based bank's foreigncurrency deposit ratings to Caa2, its fourth-lowest grade, from B2, it said in a statement. ``The rating action is in response to the announcement that the National Bank of Ukraine has taken control of Prominvestbank following the concerns about the bank's ability to continue its operations as a viable stand-alone entity,'' wrote Moody's analyst Yaroslav Sovgyra in a statement.
Ukrainian President Viktor Yushchenko has ordered early parliamentary elections be held on Dec. 7, according to a decree published on Thursday. Yushchenko on Wednesday abandoned a search for a coalition and dissolved parliament, known as the Rada. "I decree ... to hold early elections to the Supreme Rada on December 7, 2008," according to the decree which was published on the president's official Web site, www.president.gov.ua.
Ukraine's ability to repay its sovereign debt will depend on the central bank's future actions on the hryvnia currency, which hit a record low earlier this week, Moody's Vice President Jonathan Schiffer said on Friday. But he noted that Ukraine has little debt and that liabilities -- such as a sovereign guarantee for ailing state energy firm Naftogaz or promises to compensate for lost Soviet-era savings -- are so far manageable. "Ukraine has very, very little debt," Schiffer told Reuters by telephone. "It does have some contingent liabilities, it has Naftogaz, we all know that and it has those co-called "lost savings" which I personally think the current government dealt with pretty well." "I think that they could end up in a situation where they could still pay their debt but it really does depend on what the central bank does in terms of letting the currency settle on its own on a market price, or intervening heavily or intervening intermittently," he said. Moody's has a positive outlook and a B1 rating for Ukraine. Ukraine last year issued two Eurobonds -- a $700 million 10-year bond at 6.75 percent and a five-year $500 million bond at 6.385. It has been unable to issue a Eurobond this year as lending slumped, despite completing a road show in June. Another ratings agency, Fitch, downgraded its outlook to negative, warning of an increased risk of a currency crisis. Schiffer said Ukraine's gaping current account gap, global slowdown, possible lower foreign direct investment and the lack of lending have all heaped pressure on the 12-year-old currency. "Moody's is looking closely at the situation because we're aware that Ukraine is being hit by a variety of pressures. We're monitoring this closely," Schiffer said. The central bank intervened on Friday for the third day running, selling dollars at 5.0 hryvnias, after the currency hit a record low of 5.9/$ on Wednesday. The central bank has said that it thinks the hryvnia's weakness is temporary due to capital flight from the stock exchange and a demand for the dollar as banks repay foreign debts and Naftogaz pays for gas imports. The bank has to weigh the costs of intervention, which will keep the hryvnia stable but encourage imports that would boost further its trade and current account deficits, against the risks of letting the hryvnia go, which would remove one of the few anchors of the economy.

INDUSTRIAL COUNTRIES

Iceland

Iceland signalled on Sunday it might turn to the International Monetary Fund for assistance to pull through a financial storm that has brought its economy to the brink of collapse. As Icelandic officials prepared to depart for Moscow this week to begin negotiations for an emergency loan from Russia of potentially billions of euros, a top minister gave Iceland's strongest signal yet it may ask for IMF help. An official at the country's financial watchdog said a decision would be taken on Monday on whether to reopen the stock market, which was shut at the height of last week's turmoil. Meanwhile, the fallout from the crisis showed no sign of abating. A popular Icelandic minister on Sunday called for the dismissal of Central Bank head David Oddsson, saying there was a need to review Iceland's monetary policy. When asked if she wanted Oddsson out, Social Affairs Minister Johanna Sigurdardottir told Icelandic television: "I think a change is necessary." British retail billionaire Philip Green edged closer to a deal to buy the debts of Icelandic investor Baugur, a once- powerful predator that acquired a string of famous brands. Baugur UK Chairman Jon Asgeir Johannesson told Icelandic television selling the group's debts, even at "firesale prices", would be better than letting its British companies fail. "Nothing's happened yet," Green told Reuters on Sunday.

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Published on  Mon, Oct 13 2008, 10:35 GMT

China's manufacturing activity contracted for a second month

Mon, Oct 6 2008, 11:01 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina is seeking to ``bully creditors'' into accepting a new debt restructuring plan that offers ``considerably worse terms'' than the original exchange in 2005, said Elliott Associates LP, a New York-based hedge fund. The swap offer ``will not enable Argentina to remove the attachments on its assets that we have obtained,'' Jay Newman, a senior portfolio manager at Elliott, said in a statement. Elliott holds about $1 billion of defaulted Argentine debt, court filings show. That's about 5 percent of the $20 billion of defaulted debt that creditors held out of the 2005 settlement. Argentina is working with Citigroup Inc., Barclays Plc and Deutsche Bank AG on details of the exchange offer and expects to complete the transaction by year-end, Cabinet Chief Sergio Massa said last night. Massa revealed few details of the plan, only saying the government would offer just one new bond in the swap and require investors to put up cash for new bonds. Elliott called Argentina ``the poster child of rogue nations'' and urged the country to pursue ``good faith negotiations.'

Brazil

Brazilian policy makers signalled that consumer price inflation in Latin America's biggest economy may have peaked, cementing expectations that the central bank will end the current cycle of interest rate increases this year. The bank forecast that inflation will end 2008 at 6.1 percent and slow to 4.8 percent in 2009, according to its quarterly inflation report published. The forecasts are in line with economists' expectations that the bank will meet year-end inflation targets of 4.5 percent plus or minus 2 percentage points this year and next.
Brazil's industrial output rose 2.0 percent in August from the year-ago month, the national statistics agency said. The gain was less than the 2.5 percent median forecast in a Bloomberg survey of 26 economists.
Brazilian President Luiz Inacio Lula da Silva's party and allies won more than a dozen local elections as candidates capitalized on the president's record popularity two years before his term expires. Parties that are part of Lula's coalition won the race for mayor in at least 13 of the 26 state capitals, according to results released by the electoral court. The opposition won two capitals and the other 11 will hold run-off elections on Oct. 26, according to preliminary results, after no single candidate obtained more than 50 percent of the valid votes.

Chile

Chilean central bank policy makers voted unanimously to raise interest rates by half a percentage point at their September meeting. The bank lifted the target overnight lending rate by half a point for the fourth straight month on Sept. 5 as it fought the fastest inflation in 13 years.

Ecuador

Ecuadorean President Rafael Correa tightened his grip over the energy, telecommunications and banking industries as voters backed a new constitution that allows greater state control of the economy. Voters approved the new charter yesterday by a bigger-than-expected majority of more than 65 percent, according to exit polls. ``This was a clear political victory for President Correa over the traditional political establishment'' and will ``further consolidate his already tight grip on power,'' Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York, said by e-mail. The result will help reduce social conflict that has made the country one of the most unstable in Latin America, he added. Correa won the presidency in late 2006 by promising a new constitution to help alleviate poverty and put an end to the country's cycle of collapsing governments. The charter gives Correa control of the central bank, allowing him to set interest rates, and reserves the right for the government to manage ``strategic sectors'' through state-owned companies.

Mexico

Mexican money transfers registered the biggest monthly decline on record in August as a deepening U.S. credit crisis and stricter law enforcement for undocumented residents put more laborers out of work. Workers' remittances fell 12.2 percent in August from the same month a year earlier, the biggest monthly decline since the central bank began tracking the data in 1995. Money sent from abroad fell to $1.94 billion from $2.2 billion in August 2007, according to data posted on Banco de Mexico's Web site. It was the fourth straight monthly decline. Mexico's economy may weaken in part because of slowing remittances, which accounted for almost 3 percent of gross domestic product last year, central bank Governor Guillermo Ortiz said Sept. 25.

Peru

Peru's economy will expand 7 percent in 2009, slowing from 9 percent this year as the government seeks to slow record consumer spending, Finance Minister Luis Valdivieso said. Inflation is ``under pressure'' from rising commodity prices and should end the year at 5.8 percent, Valdivieso said in a meeting with foreign journalists at his office in Lima.
Peru's consumer prices rose 0.57 percent in September from the previous month, the press office of the national statistics agency said. Economists had estimated monthly inflation at 0.47 percent in September, according to the median of 14 forecasts compiled by Bloomberg.

Venezuela

Venezuelan President Hugo Chavez said the U.S. financial crisis may cause economic growth in Latin America to slow and oil prices to fall. Oil prices should stabilize between $80 and $95 a barrel, Chavez said in comments broadcast by state television. He said that the credit crisis in the U.S. will likely make it more difficult to obtain financing in Latin America.

AFRICA & MIDDLE EAST

Iran

Privatisations and increased company profits have helped to push up Iran's stock market, its head said on Tuesday, despite global financial turmoil and international sanctions imposed on the Islamic Republic. Ali Rahmani, managing director of the Tehran Stock Exchange, said the market's total capitalisation had jumped to $70 billion in August from $40 billion in January last year. "A lack of international relations here is actually a strong point for our stock exchange," Rahmani told Reuters in an interview when asked how Iranian shares so far had escaped the panic gripping many other markets. The all-share TEPIX index is up by around 20 percent this year, while still down from a 2004 high, according to the Tehran Stock Exchange website, www.tse.ir. Analysts have said Iranians with cash abroad, fearing having assets frozen because of tightening sanctions on Iran, have repatriated some of their capital from Western markets and invested in property and other assets, fuelling price rises. Rahmani said a drive to speed up the sale of state-owned companies, which he said got under way in 2007 with the part-privatisation of Mobarakeh Steel Co and National Iranian Copper Co, had boosted interest in shares. The sales coincided with rising commodity prices internationally, pushing up corporate profits. "People rushed to buy shares of those companies," he said. Rahmani also said the stock exchange wanted to encourage foreign investment and planned to hold road shows, "if the international political atmosphere gets better regarding Iran." Iran, the world's fourth-largest oil exporter, tried to shake up its lumbering economy four years ago by overturning Article 44 of the constitution which decreed core infrastructure should remain state-run.

Kenya

Kenya's central bank left its benchmark interest rate unchanged for a second consecutive meeting, after forecasting that inflation will slow. The Central Bank Rate was kept at 9 percent, Governor Njuguna Ndung'u said in an e-mailed statement from Nairobi. The bank last raised the rate by a quarter of a point on June 5. Inflation, which surged above 30 percent in May after post-election violence disrupted food production, may slow to 20 percent by January, the central bank said on Sept. 9.

Nigeria

Nigeria's foreign currency reserves rose 3 percent to $61.9 billion in September, the central bank said. The reserves increased from $60.1 billion a month earlier, the Central Bank of Nigeria in Abuja said on its Web site. The reserves peaked on Sept. 18 when central bank Governor Chukwuma Soludo said they stood at $63 billion, enough to cover 16 months of import requirements.

South Africa

South Africa's trade deficit narrowed last month as oil and machinery imports declined and exports of precious stones, metals, vehicles and machinery rose. The deficit narrowed to 5.1 billion rand ($615 million) from 14.3 billion rand the month before, the South African Revenue Service said in an e-mail. The shortfall was bigger than the 4.9 billion rand median estimate of 12 economists surveyed by Bloomberg.
The African National Congress, which led an eight-decade fight to bring democratic rule to South Africa, is on the verge of splitting as an internal power struggle that forced President Thabo Mbeki to resign deepens. Former party chairman Mosiuoa Lekota accused his colleagues in an open letter published in Johannesburg's Star newspaper of ignoring attacks on the judiciary and threats of violence by party members and backing ``policies that are dangerous to democracy.'' That prompted a riposte from Transport Minister Jeff Radebe, accusing Lekota of fostering an ANC split. ``Put bluntly, you and those who share your views are giving notice to leave the ANC,'' said Radebe, an ANC executive committee member. ``Remember that the ANC as an institution will stay forever while individuals like yourselves will go.'' The ANC fractured in 2005 when Mbeki dismissed his vice president, Jacob Zuma, amid allegations of corruption. It widened last December when Zuma wrested control of Africa's oldest political movement and won nomination as the ruling party's presidential candidate in next year's elections.

ASIA

China

China's manufacturing activity contracted for a second month, a CLSA Asia-Pacific Markets survey of purchasing managers showed. The CLSA China Purchasing Managers' Index fell to a seasonally adjusted 47.7 in September from 49.2 in August, CLSA said in an e-mailed statement. That was the lowest reading since the survey started in April 2004.

Pakistan

Ratings agency Standard & Poor's cut Pakistan's sovereign rating further into junk territory, saying the country's worsening external liquidity may imperil its ability to meet about $3 billion in upcoming debt obligations. S&P lowered on Monday its foreign currency rating on the country to CCC-plus from B, with a negative outlook. Pakistan's local currency debt rating was lowered to B-minus from BB-minus. The ratings agency noted Pakistan will require external assistance in meeting its debt obligations, but expressed concern about whether the help would be enough or whether it would come in time. S&P also expressed its worries about whether necessary policy measures would be implemented in time given what it called a "fractious and unstable domestic political scene, and rising social tension."

Philippines

The Philippines may sell as much as $750 million of bonds overseas to help fund an increase in spending designed to counter the effects of a global economic slowdown, Finance Secretary Gary Teves said. ``We plan to spend more, especially under the worst-case scenario,'' which would see the economy grow as little as 3.8 percent this year and 3 percent next year, Teves said in a Bloomberg Television interview from Manila.
The Philippine government cut its growth forecasts a second time this week, saying exports and remittances from overseas workers will falter amid a U.S. economic slowdown. The economy may expand 4.4 percent to 4.9 percent this year and 4.1 percent to 5.1 percent in 2009, Economic Planning Secretary Ralph Recto said in Manila.

EMERGING EUROPE & CIS

Baltic States

Ratings agency Fitch said on Friday it downgraded the ratings of Baltic states Estonia, Latvia and Lithuania and kept their outlooks on negative, citing worries about the countries' current account deficits. Fitch downgraded Estonia's foreign currency rating to A- from A, Latvia to BBB from BBB+ and Lithuania to A- from A. "The downgrade of the Baltic states reflects the risk that the deterioration in the European economic and financial environment will impose a more costly macroeconomic adjustment in the Baltic countries, given their large bankfinanced current account deficits," Edward Parker, head of emerging Europe sovereigns at Fitch, said in a statement. Fitch added in the statement that "the risk of a prolonged and deep recession cannot be wholly discounted, increasing the potential for adverse economic and fiscal shocks".

Hungary

Hungary revised up its July trade deficit, and while this was mainly due to a one-off rise in natural gas imports, analysts said the export and economic growth outlook remained bleak. The trade deficit was 365.1 million euros in July according to revised data, revised from the 238.6 million euros reported previously, the Central Statistics Office (KSH) said on Friday. The deficit follows a 89.7 million euro surplus in June, while in July 2007, the deficit was much lower, at 115.4 million euros. The KSH said natural gas imports surged 26 percent in July in annual terms, while crude imports rose 13 percent.

Kazakhstan

AO Kazkommertsbank, Kazakhstan's second-largest lender, is allowing builder AO Corporation Kuat to delay repaying part of about $220 million in debt, the bank's Managing Director Magzhan Auezov said in Almaty. Kazkommertsbank in March said it hired Bureau Veritas, the world's second-largest goods-inspection company, to audit stalled projects undertaken by Kuat, one of Kazakhstan's largest construction companies. The lender's ``total gross loan portfolio'' shrank by 1 percent to 2.48 trillion tenge ($20.7 billion) as of June 30 from 2.51 trillion at the end of 2007, it said on Sept. 24.
The liquidity crisis does not threaten Kazakh banks anymore, Kazakh Finance Minister Bolat Zhamishev told a briefing, a correspondent of the Kazakhstan Today news agency has said. "At the moment we can state that interbank lending rates have returned to the level of early 2007. This means that the liquidity crisis does not threaten our banks anymore," Zhamishev said.

Romania

Romania's central bank appears to have intervened in the foreign exchange market by indirectly selling euros to prop up the leu , dealers said on Monday. "Other than indirect intervention I don't see another explanation for the rise. Clearly, it's the central bank," said a dealer with a foreign bank in Bucharest. The leu firmed to 3.9480 per euro following the moves, after it lost around 2 percent to hit an almost four year low of 3.9830 earlier in the session. "A big local bank is consistently selling euros. It looks like an indirect intervention," said another dealer. An adviser to the central bank declined comment. "On this subject we don't say anything. We don't say yes, we don't say no, we don't say maybe," Adrian Vasilescu, an adviser of central bank governor Mugur Isarescu, told Reuters. In January, dealers said there were rumours of central bank intervention to prop up the leu on currency markets, but the monetary authority declined to comment.

Russia

Russia's government pledged to provide a further $50 billion to increase liquidity in the banking system and fight ``contagion'' that has spread from the U.S., Prime Minister Vladimir Putin said. The money will be made available to banks and companies to help them pay foreign loans taken before Sept. 25 and will be transferred from Russia's international reserves to the state-run development bank, Deputy Economy Minister Andrei Klepach said today on Vesti-24. ``American authorities have not managed to handle the economic problems and obvious financial crisis'' in the U.S., Putin told government officials, according to the government's Web site.

Turkey

Turkey needs to decide whether it will sign a new deal with the International Monetary Fund and remove a key uncertainty, Central Bank Governor Durmus Yilmaz told NTV broadcaster on Monday. Yilmaz said Turkey did not need IMF credit but did require some sort of anchor to underpin its economy, which has seen growth slow over the past two years, and investor confidence in it. Turkey's three-year $10 billion loan deal with the IMF expired in May. Prime Minister Tayyip Erdogan said last month talks on a follow-up agreement had reached the final stage and a decision was expected in October or November. "What matters the most with regard to the IMF is to remove uncertainty. It should be clear whether there will be an agreement or not," Yilmaz said. Economists have questioned the government's reluctance to push ahead with a new deal given the worsening economic outlook in Turkey and abroad. Erdogan has resisted a new deal because he wanted to show voters in municipal elections next March that his government has strengthened the economy to the point that it no longer needed the aid of the IMF, economists say. The market favours a precautionary stand-by deal due to Turkey's vulnerability to shifts in global liquidity because of its huge current account deficit, largely funded by foreign investment and government borrowing. Turkey has to agree to some form of agreement because it still owes the fund some $6 billion. The Turkish Central Bank would continue to inject the liquidity the market needs, and it will move fast if a liquidity shortage emerges, Yilmaz said.

Ukraine

The Kremlin has struck a tactical alliance with its former foe Ukrainian Prime Minister Yulia Tymoshenko designed to help her become the next president and help Russia rein in Ukraine's drive to embrace the West. Tymoshenko and the Kremlin have put aside years of mutual suspicion to unite against Ukrainian President Viktor Yushchenko, the driving force behind Kiev's ambitions to join NATO and Tymoshenko's rival in a bitter struggle for power. The new warmth was on show on Thursday when Tymoshenko -- who two years ago accused Russia of extorting cash from Ukraine in a row over gas -- had a cordial meeting with her Russian counterpart Vladimir Putin followed by unscheduled, late-night talks with President Dmitry Medvedev. "The tactical interests of Moscow and Tymoshenko have coincided. They have the same main opponent and that is Yushchenko," said Fyodor Lukyanov, editor of the journal Russia in Global Affairs. The calculations of both sides are focused on the next presidential vote, which must take place no later than January 2010. The field could include Yushchenko, Tymoshenko and Viktor Yanukovich, a former prime minister. The Kremlin backed Yanukovich's failed bid to win a 2004 presidential election, but opinion polls suggest he does not have enough support outside the Russian-speaking areas of the country to win the presidency now.

INDUSTRIAL COUNTRIES

Iceland

Credit-rating companies are turning negative on Iceland after the government bailed out the island nation's thirdbiggest bank amid a growing global financial crisis. Within a 24-hour span, Standard & Poor's and Fitch Ratings lowered the country's rating and Moody's Investors Service put its Aa1 rating on review for a potential downgrade. Fitch lowered the country's long-term foreign currency rating to A- from A+, and said the rating remains on review for another cut. On Sept. 29, S&P reduced Iceland's foreign-currency debt rating one level to A- and also said it may lower it further. Iceland said on Sept. 29 it will take a 75 percent stake in 104-year-old Glitnir Bank hf by investing 600 million euros ($859 million) after the firm's short-term funding dried up. The rescue followed a string of bailouts in Europe in the wake of a worldwide credit squeeze that's caused banks more than $550 billion in losses and writedowns.
Iceland's government, scrambling to avert a full-fledged market meltdown, planned further talks on Monday after working through the weekend to produce a package of financial stability measures. The country's prime minster told state television late Sunday night the country's authorities had not agreed any specific crisis measures "at this time". He said banks had agreed to sell off overseas assets and the government would meet with pension funds on Monday. The country's banking minister told state radio on Monday that the drafting of a plan to help the financial system was "well under way". Commerce and Banking Minister Bjorgvin Sigurdsson said it was impossible to give further information. The chief executive of Iceland's stock exchange said the bourse would open on Monday, Icelandic radio reported. But Thordur Fridjonsson said the exchange was holding a meeting to decide if shares in the island's banking groups would be traded.

• Download Full Emerging Markets Weekly

Published on  Mon, Oct 6 2008, 11:01 GMT

The Icelandic crown skidded to a fresh record low against the euro on Friday

Mon, Sep 29 2008, 09:16 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

EMERGING MARKETS

According to an article published by S&P, the ratings agency have turned negative on some EM sovereign credits. The article titled: 'At The Top Looking Down' suggests that the trend of improving credit fundamentals in EM sovereigns that has prevailed since 2003, appears to have run its course. S&P said the EM credit quality that has improved in the last 5 yrs will not be lost but the agency sees little further upside, commenting 'a pronounced downside is beginning to appear'. The agency still has stable outlooks on 33 of 43 of EM sovereigns, but only Poland, Slovak Republic have positive outlooks; whilst Hungary, Kazakhstan, Serbia have negative outlooks. The forecasts for most EM sovereigns call for lower growth, higher inflation, and deteriorating current accounts as dislocations in credit markets of industrialised nations persist. Therefore, S&P say EM as a whole has peaked in credit quality but there was no mention of major LatAm credits.

LATIN AMERICA

Argentina

Argentine President Cristina Fernandez de Kirchner may send Congress as soon as next month a plan to restructure defaulted debt held by investors who rejected a government offer in 2005, newspaper Infobae reported, citing Cabinet Chief Sergio Massa. Massa said the government will need ``two or three weeks'' to analyze a proposal submitted by three banks this week before submitting it to Congress for approval, Infobae said.

Brazil

Brazilian banks may struggle to boost profit next year as slower economic growth crimps an expansion in lending, Deutsche Bank analyst Mario Pierry wrote in a report. ``Sentiment toward the sector has deteriorated worldwide, and the indirect effects of the U.S. financial crisis could add further pressure to an already challenging operating environment in Brazil,'' Pierry wrote in a report distributed. Net interest margins, or the difference between what banks pay for deposits and charge on loans, may be a quarter percentage point narrower than estimated on average, should credit expand 15 percent next year, rather than the 20 percent Deutsche Bank forecasts, Pierry wrote.
Brazil eased rules on reserve requirements that banks must keep at the central bank in response to the credit crunch sparked by the U.S. financial crisis. Banco Central do Brasil delayed the introduction of higher rates for mandatory deposits from leasing companies by two months and raised the threshold on exemptions for cash, time and savings deposits, according to an e-mailed statement.

Chile

Chile's Finance Minister Andres Velasco said the country's sovereign wealth funds aren't at risk because of the U.S. financial crisis, Diario Financiero reported. The funds, which total about $21 billion and invest Chile's copper profits, aren't exposed to institutions affected by the crisis, Velasco said.

Colombia

Colombia's economy expanded at the slowest pace since 2005 in the second quarter as efforts to stem inflation damped consumer and industrial spending. Gross domestic product, excluding illicit crops, rose 3.7 percent in the April-through-June period, down from a revised 8.0 percent growth in the same year-earlier period, the country's statistics agency said in a report published in Bogota.

Dominican Republic

Fitch Ratings has affirmed the Dominican Republic's ratings as follows: Foreign currency IDR at 'B'; Local currency IDR at 'B'; Country ceiling at 'B+'; Brady bonds at 'B+/RR3'; Senior unsecured debt at 'B/RR4'; Shortterm foreign currency IDR at 'B'. Fitch has also revised the Rating Outlook to Stable from Positive for both the Dominican Republic's foreign and local currency IDRs, reflecting increased concern that the Dominican Republic's comparatively weak liquidity position relative to 'B' peers will render the country more vulnerable to external shocks in an environment of lower global growth and tighter international liquidity conditions.

Ecuador

Ecuador registered a budget surplus in the first half that will allow the government to keep investing, President Rafael Correa said. Ecuador's central government had a surplus of $508 million and public-sector entities such as municipalities and state-run universities had a $2.17 billion surplus, he said in his weekly television address.
Ecuador's President Rafael Correa said the nation may not honor a loan of more than $200 million owed to Brazil's state development bank that's linked to Odebrecht SA, a Brazilian construction company he says did a poor job building a plant.

Mexico

Petroleos Mexicanos, Mexico's state- owned oil company, may report that crude output fell for the 25th consecutive month in August, adding pressure on Congress to take up delayed legislation aimed at increasing production. Pemex probably extracted less than 2.842 million barrels a day, the amount the company produced in August 2007, said David Shields, an independent energy analyst and publisher of Energia magazine. The problem for Mexico is exacerbated by a more than 25 percent decline in oil prices since peaks reached in July.

Peru

Peruvian President Alan Garcia's approval rating dropped for a fourth month to the lowest since he took office in 2006 as Peruvians criticized his government for a two-week state doctors' strike and failing to halt inflation, daily newspaper El Comercio reported. Garcia's support fell to 19 percent this month from 22 percent in August, the newspaper said, citing Lima-based Ipsos Apoyo Opinion y Mercado. Eighty-two percent of those surveyed disapproved of Peru's Congress and 79 percent felt the same way about the country's judiciary.

Venezuela

Venezuela's unemployment rate fell to 7.1 percent in August, from 7.2 percent in July, matching the forecast of five analysts in a Bloomberg survey. The jobless rate fell from 8.6 percent in the same month a year ago, according to statement from the government-run National Statistics Institute.
Venezuela is considering buying back $2 billion of government bonds denominated in foreign currencies, newspaper El Nacional reported, without saying how it obtained the information. The plan calls for the buyback of debt maturing in 2010, 2013 and 2027, the newspaper reported.
Venezuela, the world's fifth-largest oil exporter, will boost crude shipments to China by 25 percent in 2009 to benefit from rising energy demand in the fastest-growing major economy, President Hugo Chavez said

AFRICA & MIDDLE EAST

Mozambique

Fitch Ratings affirmed the Republic of Mozambique's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B' and 'B+' respectively, with Stable Outlooks. The Short-term foreign currency IDR is affirmed at 'B'. The country ceiling is affirmed at 'B'. "Mozambique's ratings are supported by a strong growth record, averaging 7.7% over the past five years, and the strongest export growth of all Fitch-rated 'B' countries over the last ten years, underpinned by one of the strongest investment rates in the 'B' rating category - 31% on average over the past five years versus a median of 24%," says Veronica Kalema, Director in Fitch's Middle East and Africa Sovereigns team. Sound economic policies and reforms, strong investment in the natural resources sector and solid donor support have all contributed to the above achievements and improved the resilience of the economy.

South Africa

South African Finance Minister Trevor Manuel said he and his deputy Jabu Moleketi have agreed to a request to serve in a new administration following the exit of President Thabo Mbeki. ``I am more than prepared to continue serving,'' Manuel told reporters via a video-link from Washington. ``I answered in the affirmative'' when asked to remain in the post.
South African inflation will remain `higher than expected,'' even after the statistics office makes changes to the consumer price index, Reserve Bank Governor Tito Mboweni said.

United Arab Emirates

The United Arab Emirates Central Bank launched an emergency funding facility for its banks on Monday as signs grew that a global liquidity crunch was biting in the oil-rich Gulf States. The central bank of the world's fifthlargest oil exporter said it would set up a 50 billion dirham ($13.6 billion) funding facility due to bottlenecks in money markets, in a move similar to those made by the Federal Reserve and European Central Bank. Bankers in neighbouring Kuwait and Saudi Arabia also renewed calls for their central banks to take similar action to ease market tensions that stretch back to the start of this year. While banks in the Gulf have largely ridden out the lending rates jumping 170 basis points since early June to 3.61 percent. "Everyone needs money. There is a massive shortfall," said Jason Goff, head of treasury sales at Emirates NBD. "These (central bank) funds are going to help. They are definitely required." The Gulf has expanded rapidly on a surge in oil prices since 2002, sparking a real estate boom and creating the world's largest sovereign wealth funds, one provider of liquidity during the year-long credit crunch. But that is little help to markets when lending between commercial banks worldwide has frozen up. "The central bank expects these funds would meet banks' needs for supporting continued financing of economic growth," the central bank said in a statement, without giving details on how the facility would be structured or operated. Bankers said the facility would likely involve the central bank buying debt -- such as bonds or certificates of deposits -- from banks in return for funds.
UAE banks have faced a liquidity shortage since authorities opted in April to keep the dirham pegged to the dollar, a move that quashed market bets the currency could be revalued to fight inflation at a 20-year high. The central bank said last week that 90 percent of foreign speculative money, which started flooding in late last year, had flowed out of the country. As in other Gulf states, the retreat has given banks less cash to lend and prompted calls for central banks to intervene. "In the last two years, loan growth was faster than deposit growth and essentially what happened was there was greater demand among corporates and banks for external funds," said Giyas Gokkent, head of research at National Bank of Abu Dhabi. "That has dried up because of the global volatility, and the projects are so large that any decline in funding sources creates a problem." In Saudi Arabia, economists said one possible move would be to cut the reserve requirement for banks, raised by the central bank four times since last November to the current 13 percent. They said the need for action was there, if less urgent. "If SAMA (Saudi Arabian Monetary Agency) injects money it will not be a bad thing," said John Sfakianakis, chief economist at HSBC affiliate SABB bank. "With the revaluation debate being over, banks have taken their money out, the deposit base is limited, high demand for loans, limitations on money that can be spent because of inflation and we are in a negative interest rate environment." Bankers in Kuwait said they had not heard of any plans by its central bank to pump more liquidity into the system, despite a public plea by the Kuwaiti banking association. Interbank rates in Kuwait have almost doubled since the central bank withdrew in August a facility guaranteeing the availability of dinars at a fixed rate on the interbank market.

Zambia

Inflation in Zambia, Africa's biggest copper producer, accelerated to an annual 14.2 percent in September as energy increased, the Central Statistical Office said. The inflation rate climbed from 13.2 percent last month.

ASIA

China

Chinese banks face worsening asset quality and slower profit growth as the nation's tight monetary environment and a worsening global credit crisis cause more borrowers to default, Fitch Ratings said. The nation's 14 publicly traded banks, whose total net income jumped 67 percent in the first half from a year earlier, have already shown signs of rising borrower defaults and tighter liquidity, the ratings agency said. ``Chinese banks appear to be approaching their first real test of resilience,'' Beijing-based analysts Charlene Chu and Chunling Wen wrote in a report yesterday. ``Increased vigilance is warranted as Chinese banks take on the growing challenges ahead.'' Chinese banks have boosted profits over the past three years as the nation's economy expanded at around a 10 percent annual clip. Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and Bank of Communications Ltd. have predicted slowing growth after posting record earnings in the first half. Listed banks posted an average yield on loans of 7 percent in the first half, up from 6.3 percent in 2007, Fitch said. Loan profitability will narrow in the fourth quarter after the central bank cut the benchmark lending rate for the first time in six years and increased credit quotas in July, the report said.
Eighteen months ago, U.S. Treasury Secretary Henry Paulson told an audience at the Shanghai Futures Exchange that China risked trillions of dollars in lost economic potential unless it freed up its capital markets. ``An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,'' Paulson said. That advice rings hollow in China as Paulson plans a $700 billion rescue for U.S. financial institutions and the Securities and Exchange Commission bans short sales of insurers, banks and securities firms. Regulators in the fastest-growing major economy say they may ditch plans to introduce derivatives, and some company bosses are rethinking U.S. business models.

Malaysia

Malaysia's inflation will slow after peaking in recent months, state news service Bernama reported, citing Prime Minister Abdullah Ahmad Badawi. The government will now focus on offering a stimulus package to boost economic growth, Abdullah was quoted as saying by the report, without specifying the measures. Malaysia's inflation accelerated to 8.5 percent in July, the fastest pace in more than 26 years, after the government raised gasoline and diesel prices in June to cut fuel subsidy costs and narrow the budget deficit.

Nepal

Nepal's new Prime Minister Prachanda, a former Maoist guerrilla leader making his first trip to the United States, said on Wednesday his government would maintain democracy and not nationalize the economy. In a speech in New York on the sidelines of the U.N. General Assembly, he largely avoided using the language of Marx and Mao and said he wanted to clarify his month-old government's plans to develop the poor Himalayan country. "There is serious confusion and misunderstanding about our overall position in terms of economic development," he told the Asia Society think tank. "We are not fighting against the capitalistic mode of production." The prime minister's full name is Pushpa Kamal Dahal, but he still goes by his nom de guerre Prachanda - meaning "terrible" or "fierce." "In this transitional economic policy, we will try to have public-private partnership. We are not going to jump into other kinds of nationalizing or things like that," he said. Prachanda's election last month, after his Maoist party won a surprise victory in April's assembly elections, was seen as a major step toward capping a peace process after a civil war in which more than 13,000 people died. His Maoist party heads the country's first coalition government after the abolition of the 239-year-old Hindu monarchy and the declaration of a republic.

Pakistan

The outlook on Pakistan's B2 government bond rating was cut to ``negative'' by Moody's Investors Service, which said the country may have greater difficulty gaining access to foreign currency. The U.S. ratings company also cut to ``negative'' the outlook for the country's B3 foreign currency bank deposit ceiling. It left the unchanged the ``negative'' outlook for the Ba3 foreign currency bond ceiling. ``After the election of President (Asif Ali) Zardari, domestic political stability may improve somewhat, but underlying tensions will be difficult to remedy,'' Aninda Mitra, Moody's sovereign analyst for Pakistan, said in a report. ``Moreover, economic stabilization measures are expected to remain under pressure from deteriorating socio-economic conditions as well as a worsening external environment, and key macroeconomic objectives may not be met.''
Pakistan President Asif Ali Zardari will ask the U.S., U.K. and other industrial nations for financial aid amid concern South Asia's second-largest economy is in danger of defaulting on its debt.

Philippines

The Philippines may pre-fund its 2009 borrowings in the fourth quarter, National Treasurer Roberto Tan said. The Bureau of the Treasury is still considering $750 million in additional borrowing, Tan said in Manila. ``If the market becomes very difficult next year there can be an option to pre-fund borrowing,'' Tan said. ``The Philippines will sell $1.5 billion in debt next year.''
The Philippines may exceed its budget deficit target of 40 billion pesos ($860 million) next year as the government boosts spending to spur economic growth, Finance Secretary Gary Teves said. The Philippines may need to spend more than originally planned to boost growth if the United States, its biggest trading partner, fails to put an end to the credit crunch, Teves told reporters in Manila.

EMERGING EUROPE & CIS

Armenia

Russia's Gazprom said on Tuesday it will raise the gas price for Armenia by 40 percent next year, bringing it into line with the European market within two years, as it seeks to stop subsidising former Soviet states. Gazprom, Russia's gas export monopoly, has been supplying former communist neighbors with cheap gas for more than 15 years, since the Soviet Union collapsed. It is seeking to make them gradually reach parity with gas prices in Europe. Gazprom will charge Armenia $154 per 1,000 cubic metres (tcm) from April 1, 2009, up from $110 per tcm this year, Karen Karapetyan, general director of ArmRosgazprom, Gazprom's Armenian subsidiary, told reporters. In 2010, the price will further climb to $200 per tcm, and from 2011 Armenia will pay Gazprom as much as its European customers, he added. Karapetyan said that Armenia, which has no natural gas of its own and relies solely on imports, plans to buy 2.5 billion cubic metres (bcm) of gas in 2009, up from 2.4 bcm this year.

Belarus

Opposition candidates failed to win any seats with most results declared on Monday in a parliamentary election that Belarus's President Alexander Lukashenko hopes will promote better relations with the West. Election officials said all 100 seats so far had gone to pro-government candidates, as hundreds of opposition supporters marched in Minsk to protest against the ballot and to urge the West not to endorse it. Only 10 seats remained to be decided. Organisation for Security and Cooperation in Europe (OSCE) observers are due to report at 3 p.m. (1200 GMT) whether they found the poll in Belarus, once described by Washington as Europe's last dictatorship, to be free and fair. No election in the former Soviet republic, wedged between Russia and three EU members, has won Western approval since the mid-1990s, but Lukashenko has sought better ties in the past two years amid rows with traditional ally Moscow over gas prices.

Bulgaria

Ratings agency Moody's cut the outlook on Bulgaria's debt and currency ratings to stable from positive on Thursday, citing rising current account imbalances and the prospect of slower growth. "The prospect of an upgrade in the next 18 months has diminished because of deteriorating external imbalances -- from already high levels -- combined with the growing prospect of a sharp slowdown in economic growth next year in the context of the spreading global credit crunch," it said in a statement. European Union entry has generated an economic boom in the past few years due to strong growth in domestic consumption, credit lending, and foreign investment as former communist Bulgaria catches up with western Europe. But as global funding costs rise and the European economy cools, international banks are expected to reduce their credit expansion in Bulgaria, hitting growth, Moody's said. "Moody's is concerned that Bulgaria's outsized external imbalances leave the economy exposed to a potential reduction in external liquidity and asset price corrections, which could exert pressure on the domestic financial system," said Kenneth Orchard of Moody's. Some analysts say Bulgaria's huge current account deficit of over 20 percent of GDP and dependence on foreign cash could even lead to a hard landing if global financial woes persist. Moody's said it expected larger Bulgarian banks would receive liquidity assistance and capital injections from their parent banks if necessary. Most of Bulgaria's banks are owned by big European banks, mainly from Italy and Greece.

Georgia

Ratings agency Standard & Poor's on Thursday removed Georgia's ratings from CreditWatch negative, citing the end of fighting with Russia over South Ossetia and the provision of foreign aid to Georgia. S&P put Georgia on CreditWatch on Aug 8 when fighting broke out in the Georgian separatist region. "Georgia's economy is stabilising following the brief but intense war with Russia, and will be supported by an estimated $3 billion (24 percent of GDP) in foreign aid," Standard & Poor's credit analyst Trevor Cullinan said in a statement. Georgia's long-term debt is rated B by S&P, and the outlook is now stable.

Hungary

The minister responsible for Hungary's secret service said on Thursday a security firm was suspected of using illegal means to collect data on leading figures in business and politics. The Socialist minister, Gyorgy Szilvasy, told state television the company, which he did not identify, operated as a "shadow secret service" and politicians of the opposition party Fidesz were in contact with it. Szilvasy said the suspicions were based on taped telephone conversations which he had handed over to parliament's national security committee. "There is evidence of the operation of this octopus-like network, and (evidence) to justify the suspicion that they used unlawful means," Szilvasy said. He said the firm collected data on Economy Minister Gordon Bajnai as part of a background survey. Szilvasy said there was no evidence opposition politicians did anything unlawful but they gave work to the firm. Fidesz deputy faction leader Robert Repassy told Reuters two former secret service ministers from the party had contact with the security firm, but the tapes showed these were informal discussions and the politicians did not break any laws.

Kazakhstan

Kazakhstan, Central Asia's biggest oil producer, and the Abu Dhabi government created a $500 million fund to invest in energy and financial services in Kazakhstan and other former Soviet states. The Falah Growth Fund will finance projects in oil and gas, insurance, commercial property and other areas, Kazakh state investor Kazyna said in an e-mailed statement. Kazyna agreed to create the fund on Sept. 10 with Abu Dhabi's International Petroleum Investment Co., Kazakh private company Ordabasy Corp. and Falah Partners CI Ltd., it said.
Kazakhstan's government, grappling with a credit squeeze that has cut economic growth by half, is working on a $5 billion rescue fund to buy distressed assets from its banks. The central Asian country's banks will be able to swap their loans for bonds that are ``partially guaranteed by the government,'' Kazakh Finance Minister Bolat Zhamishev told a banking conference in the financial capital Almaty.

Latvia

Latvia's current account deficit fell to 15.6 percent of gross domestic product in the second quarter of 2008 from 18.3 percent in the first three months of the year, the central bank said on Tuesday. It was also a fall from the 24.9 percent of GDP registered in the second quarter of 2007, the bank said in a statement. "In the second quarter of 2008, economic growth in Latvia continued to slow down, and, in line with expectations, the current account deficit ... decreased notably, thus easing the risks of unbalanced development," the bank said. A key reason for the fall in the current account gap was a smaller trade deficit due to falling imports, the bank said. It saw risks to export growth from a weakening in the economies of trade partners. "Against this background, the role of the government's fiscal policy increases," it said, calling again for a balanced budget in 2009, in contrast to government plans for a budget deficit of 1.85 percent of GDP.
Moody's Investors Service has changed the outlook on the government of Latvia's A2 foreign and local currency debt ratings to negative from stable. The outlook on the A2 country ceiling for foreign currency deposits has also been changed to negative. The outlook on the Aa1 country ceiling for foreign currency bonds remains stable. According to Moody's, the change in outlook on the government's debt ratings is prompted by the steep fall in economic growth from double-digit annual rates to roughly zero, threatening a decline in the government's financial strength if not halted and contained. Consumption and investment had been inflated by a substantial increase in domestic credit and a related property boom, both of which are now unwinding. The rating agency cautions that declining external liquidity is increasing pressure on the domestic financial system, which could weaken local banks' lending capacity and exacerbate the economic slowdown.

Romania

Romania's buoyant real estate market may lose steam as financial turbulence boosts borrowing costs and leads to tighter lending conditions, the finance minister and the International Monetary Fund were quoted as saying. The real estate market, including construction and hefty foreign investment in property, has so far been a key driver of growth in the new European Union state as buyers flocked to what was seen as one of the most attractive sectors in Europe. "It is possible to see a contraction in the residential housing area," Finance Minister Varujan Vosganian was quoted as saying by daily Ziarul Financiar on Friday. He said did not expect a fall in the price of industrial real estate. The Ziarul Financiar newspaper also quoted the International Monetary Fund's senior representative in Romania as saying the domestic real estate market would lose some of its lustre. "Real estate yields will not be so high any more," IMF's Juan Jose Fernandez-Ansola said. "A slowdown in sales and a halt in real estate prices can be seen already." Overall construction grew 33.9 percent in the second quarter of this year, compared with 32.3 percent in the same period in 2007, data showed earlier this month.

Russia

Russia's economic growth may slow and inflation may accelerate more than the government expected amid the credit crunch, said Arkady Dvorkovich, Dmitry Medvedev's adviser. The financial crisis may erode gross domestic product growth, which the Economy Ministry estimated at 7.8 percent this year, by as much as 1 percentage point, he said, according to state broadcaster Vesti-24. Inflation may reach or ``slightly'' exceed 12 percent, he added.

Turkey

Turkish banks are starting to feel the effects of a tightening global credit market and will find it difficult to get long-term credit from abroad, Is Bank Chief Executive Ersin Ozince said on Tuesday. "Liquidity is tightening. It will be nearly impossible for the Turkish banking sector to find long term credit from abroad," Ozince told CNBC-e in an interview. Is Bank is Turkey's largest private bank by assets. Turkish banks are considered better placed than many European and U.S. rivals because of their strong balance sheets and limited foreign exposure. A deep financial crisis in 2001 also forced many Turkish banks to become more cautious in their lending practices. However, emerging markets, including Turkey, have not been immune to the global credit crunch, sparked by the U.S. housing market crisis. Turkish stocks have been hard hit too. Ozince said he did not expect foreign interest in Turkish stocks to increase in the short term. The percentage of foreign ownership in Turkish stocks fell to 67.77 percent last week from more than 70 percent earlier in the month. Istanbul's main stock index fell by as much as 16 percent last week, following global markets lower as the U.S. financial crisis worsened with the collapse of investment bank Lehman Brothers. Ozince said the banking sector's funding abilities will affect Turkish companies' expansion plans, particularly in the energy sector.

Ukraine

Ukrainian farmers have reaped 20 percent more sunflower seeds so far this season than a year earlier and the grain harvest has almost doubled, the Agriculture Ministry said. Farmers reaped 1.36 million metric tons of sunflower seeds as of Sept. 19, the ministry said in a statement published on its Web site that day. The average yield was 1.4 tons a hectare (2.47 acres), compared with 1.13 tons a year ago. About 23 percent of the planted land has been harvested. The overall grain harvest has totaled 44.1 million tons so far, compared with 23.7 million tons in the season to Sept. 14 a year ago, according to the ministry.
Ukraine's Prime Minister Yulia Timoshenko reiterated her plan to eliminate natural-gas trading companies from the market by 2009 in an attempt to get direct contracts with Russia.
Ratings agency Fitch cut Ukraine's sovereign outlook to negative on Thursday, warning of rising risk of a currency crisis as economic fundamentals deteriorate and the country faces yet another election. Fitch said the current account deficit, which it said was the main risk to the currency, is likely to widen further as prices of gas imports rise and prices of its steel exports fall. It said Ukraine was likely to need to borrow more, precisely at a time when global debt markets have ground to a virtual standstill. It said a downgrade was possible if the risk that Ukraine could fail to borrow abroad grew. "The negative outlook signals Fitch's concerns that Ukraine faces a growing risk of a currency crisis, driven by a widening current account deficit and deteriorating financial prospects," said Andrew Colquhoun, director in Fitch's sovereign group. "Strong capital inflows and reserves growth so far in 2008 are evidence of some resilience, but Ukraine faces growing risks." The country's current and trade accounts both turned negative in 2005, after Russia began a series of steep gas price hikes and Ukraine introduced trade regulations to bring it in line with the WTO, which increased other imports. The country's economy is export-driven and has benefited from soaring steel prices in the past year, but prices could now rise more slowly or even fall. The central bank in February abandoned a 3-year policy of keeping the hryvnia to the dollar at 5.00-5.06, allowing the currency to strengthen to as much as 4.5/$ and intervening on the interbank market far less. But in past weeks it has shed all those gains and on Thursday it traded at 5.073-5.090 -- close to a two-year low. One dealer said Fitch's announcement had no impact so far on the market "because they did not talk about anything new. They've talked about these problems -- the deficit and so on -- already for some months".

INDUSTRIAL COUNTRIES

Iceland

The Icelandic crown skidded to a fresh record low against the euro on Friday, weighed down by worries about the global financial system and an illiquid local swaps market. Investor jitters returned in force after negotiations stalled on a U.S. $700 billion bailout package for toxic assets, with Icelandic banking liquidity seen as particularly vulnerable to the crisis. "Iceland is getting hit particularly hard by the global disruption of money markets because Iceland depends on being able to offer high yields and that's not the case currently," said Beat Siegenthaler, chief strategist, emerging markets at TD Securities. The crown fell as far as 141.14 per euro and by 1250 GMT was trading at 140.70, not far off its low. The crown has fallen some 35 percent this year. The crown also hit a 6-1/2 year low against the dollar at 96.83 before trimming losses to 96.10. Asgeir Jonsson, economist at Kaupthing in Reykjavik, said the crown was also being hit by a scramble for euros and dollars by Eurobond issuers that are set to start paying back a wave of issues coming due. Jonsson said Iceland's high interest rates were not helping the crown because people who have put on carry trades have had to do so through the swaps market and that market has been clogged up.

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Published on  Mon, Sep 29 2008, 09:16 GMT

The impact of the global financial crisis on the Hungarian financial sector has been limited

Mon, Sep 22 2008, 11:00 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

FINANCIAL CRISIS

Last Monday, in one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer. The Dow and 2-year U.S. Treasury hit with their biggest 1-day tumble since Sept 2001. On the same day, U.S. insurance giant A.I.G. sought a $40 billion lifeline from the Federal Reserve, without which the company might have survived only few days. The company lost $13.2 billion in the first six months of 2008, largely owing to declining values in mortgage-related securities. Shares in A.I.G. tumbled more than 60 percent on Monday morning as investors grew concerned that the firm lacked capital to withstand cuts to its debt rating. Trading volumes on the NYSE reached the highest on record. Russia’s stock market tumbled 17% and remained closed for the next two following days.

On Tuesday, the Federal Reserve agreed to give AIG a $85bn bridge loan over 24 months, at a cost of 850bp over three month Libor. In return, the government will receive warrants that can be converted into common stock giving the government nearly 80 percent ownership of the insurer. The cost to hedge against losses on U.S. government debt climbed to a record level. Libor overnight climbed to 6,47%. Morgan Stanley and Goldman Sachs came under pressure with stocks losing more than 40% in value.

On Wednesday, the Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s. Under the new arrangements, the ECB doubled its limit of dollars it can get from the Fed to $110 billion and Switzerland's central bank can get $27 billion, an extra $15 billion. New swap facilities with the Bank of Japan, the Bank of England and the Bank of Canada amount to $60 billion, $40 billion and $10 billion, respectively. Financial markets welcomed the announcement by lowering the cost of borrowing in dollars overnight to 3.84 percent from 5.03 percent yesterday.

On Thursday, Lloyds TSB Group Plc agreed to buy HBOS Plc for $18.9 billion as the government tried to keep Britain's largest mortgage lender from succumbing to the worsening global credit crisis.

At the end of the week UK, U.S. and German regulators banned short selling of financial companies' shares. In addition U.S. government announced that it is working on a plan to bail out financial institutions in the United States by granting unfettered authority for the Treasury Department to spend as much as $700 billion to buy up distressed mortgage-related assets. Short sale ban and US Treasury money fund plan led to a stock rally around the world on Friday. The financial sector added 5.7%, the Micex index leaped 29% and the RTS index rallied 22%.

LATIN AMERICA

Argentina

Argentina's 2009 budget assumes economic growth of 4 percent, a fiscal surplus of 3.02 percent of gross domestic product and slowing inflation, Cabinet Chief Sergio Massa said. Argentina's peso will weaken to an average of 3.19 pesos per dollar next year from 3.0869 pesos per dollar, Massa told reporters in Buenos Aires. Inflation next year will be 8 percent and the country will have a trade surplus of $12 billion, Massa said. Massa said Argentine law prevents the country from opening negotiations with holders of defaulted Argentine debt until at least 2010.
Argentina may offer to compensate holders of about $25 billion of bonds who refused to accept the terms of the government's 2005 restructuring of defaulted debt, Clarin newspaper reported. The offer, which may be made during a trip by President Cristina de Fernandez de Kirchner to the U.S. this week, would give the so-called holdout bondholders less than what was offered in 2005, the newspaper said, without specifying where it obtained the information. The offer would be based on a plan presented by Barclays Plc, which represents holders of $4 billion to $5 billion of the defaulted bonds, Clarin said.

Brazil

Brazil's retail sales accelerated in July, buoying expectations that sustained domestic demand will allow Latin America's largest economy to weather slower global growth. Retail sales rose 11 percent in July, up from a 8.2 percent gain in June, the slowest pace in 14 months, the national statistics agency said.

Colombia

Colombia's central bank left borrowing costs unchanged as concerns about the fastest inflation since 2001 are offset by slowing economic growth. Policy makers held the interbank rate at a seven-year high of 10 percent for the third consecutive month, meeting expectations of all 29 economists surveyed by Bloomberg. Bank chief Jose Dario Uribe's 16 interest rate increases in the past 2 1/2 years may have reduced inflationary pressures by curbing demand for goods such as cars and real estate. Further increasing rates would exacerbate the economic slowdown, said Liliana Rojas, an economist at Bogota-based Vision de Valores SA.

Ecuador

Ecuador may challenge the legitimacy of its international debt in court based on evidence some of it was fraudulently contracted, President Rafael Correa said. A government audit of the South American country's foreign debt is almost ready, Correa said in a television interview broadcast on the Canal Uno network. ``The findings are harrowing,'' Correa said. ``If we find we can win international lawsuits, that's what we'll do.'' Correa has roiled debt markets with threats to default since he took office last year. With revenue increased by record oil prices earlier this year, Ecuador has met its repayment schedule on its $3.9 billion in foreign debt during Correa's term.
Ecuadorean President Rafael Correa said he would resign if voters turn down a new constitution in a Sept. 28 referendum. Should the constitution fail to win approval from more than half the voters, former officials and governing bodies --including a suspended congress -- would be reinstated, he said in his weekly radio and television broadcast.

El Salvador

Standard & Poor's revised the sovereign credit outlook for El Salvador to negative from stable but affirmed the "BB+" rating on Wednesday, citing structural weaknesses despite progress on economic management. "Poor social indicators; education, technology, and training gaps; and high crime rates constrain economic prospects," S&P said in a statement. S&P did say the rating, one notch below investment-grade, was supported by a stable monetary environment which benefited from dollarization in 2001. It also benefited from a track record of predictable, market-oriented policies that has created a favorable investment environment, sustained economic growth, and led to gradual debt reduction. But the rating agency added that inefficient gains in productivity and rising inflation, peaking at 9.5 percent in 2008, undermine the country's competitiveness.

Mexico

Mexico's central bank left its benchmark interest rate unchanged, breaking a streak of three consecutive increases, as policy makers said economic growth may slow and inflation will probably remain within forecasts. The bank's five-member board, led by Governor Guillermo Ortiz, left the key lending rate at 8.25 percent. While inflation may continue to accelerate, the bank's statement that price increases will probably remain within its forecasts signal policy makers will leave rates unchanged for the rest of the year, said Gabriel Casillas, an economist at Banco UBS Pactual.

Peru

Peru's inflation will slow next month on declining prices of imported commodities, central bank President Julio Velarde said. The country's fastest inflation in a decade will slow as prices of crude oil, wheat, corn and soybeans fall, Velarde told a congressional panel. Prices will rise less than 3 percent in 2009 as six increases in the bank's lending rate this year help slow consumer spending, he said.

Venezuela

Venezuela expelled a director of Human Rights Watch after the group issued a report charging President Hugo Chavez's government is restricting its opponents political freedoms to help consolidate power. Jose Miguel Vivanco, Americas director at Human Rights Watch, violated the Venezuelan constitution by ``attacking Venezuela's democratic institutions,'' according to an e-mailed statement from the Foreign Ministry. ``That's enough,'' Foreign Minister Nicolas Maduro said, according to a statement from the Information Ministry. ``Anyone who wants to interfere in our system and undermine our institutions from within will get the same response.''
Moody's Investors Service put Venezuela's "B2" foreign currency sovereign credit rating on review for a possible upgrade, citing an improved debt position and a good payment track record. "Venezuela's debt indicators have reported clear and sustained reductions in recent years," Moody's sovereign credit analyst Gabriel Torres said in a written statement. "But because political concerns have constrained the rating in the past, our review will consider whether the internal political volatility is less likely to impact debt payments than suggested by the current ratings structure," he added. Venezuela's economy remains too dominated by oil production while political concerns in the past have constrained the rating. However the debt indicators have showed clear and sustained reductions in recent years. "... our review will consider whether the internal political volatility is less likely to impact debt payments than suggested by the current ratings structure," he said. Moody's will keep a close watch on how the government handles the drop in oil prices from record highs. It is high oil prices that have counteracted Venezuela's weak institutions and macro-economic imbalances. "Given Venezuela's relative lack of economic diversification and its noisy political environment, its susceptibility to event risk is assessed as "high" in Moody's sovereign bond methodology," the statement said.

AFRICA & MIDDLE EAST

Egypt

Egypt's unemployment rate fell to 8.4 percent in the second quarter from 8.9 percent in the previous three months, Al-Masry al-Yom reported, citing the Central Census Authority. More than 30 percent of Egypt's university graduates were unemployed in the three months through June, even as the jobless rate fell, the Cairobased independent newspaper said. Two million people were unemployed in the second quarter, the newspaper said.

Nigeria

Nigeria's economic growth accelerated to 6.7 percent in the second quarter, driven by production in non- oil industries. Growth accelerated from 5.5 percent in the previous three months, the Abuja-based Central Bank of Nigeria said in a statement on its Web site.
Nigeria's main militant group announced a cease-fire ``until further notice'' in the oil-rich Niger River delta region. The Movement for the Emancipation of the Niger Delta said it decided to halt a week of attacks on Africa's biggest oil industry because of pleas from prominent people from the region. ``We hope that the military has learnt a bitter lesson,'' MEND spokesman Jomo Gbomo said in an e-mailed statement. `The next unprovoked attack will start another oil war that will be so ferocious that it will dim the pleas of the elders.'' The Nigerian military welcomed the cease-fire, saying it will remain on guard in case the announcement was meant to deceive it.

South Africa

The ouster of South African President Thabo Mbeki may further rattle investors contending with the global financial crisis, a growth slowdown in the continent's largest economy and a near record trade deficit. ``International investors are already nervous, and this just adds to it,'' said Patrick Mathidi, a fund manager at Johannesburg-based RMB Asset Managers, which oversees about $24 billion. The departure of Mbeki clears the way for African National Congress leader Jacob Zuma, 66, to strengthen his influence under a caretaker leader whom the ANC may name today. Mbeki bowed to the ANC's demand two days ago to quit after a High Court judge suggested he pressured prosecutors to pursue corruption charges against Zuma, who will likely win 2009 elections.

ASIA

China

China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dimmed the outlook for economic growth. The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective Wednesday, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point.

Pakistan

The terrorists who carried out the truck bombing of the Marriott Hotel in Islamabad that killed 53 people two days ago were aiming to strike at Pakistani leaders meeting nearby, Prime Minister Yousuf Raza Gilani said. Security around the prime minister's house, where leaders were attending a dinner, prevented the attack, the official Associated Press of Pakistan cited Gilani as saying in Lahore. The Czech ambassador, two U.S. citizens and a Vietnamese woman were among those killed at the hotel, the government said. ``It is a cowardly act of terrorism against innocent people,'' Gilani said, according to APP. ``We need cooperation from all to cut the roots of terrorism, which is defaming the country in the world.''

South Korea

South Korea won ``developed'' status from FTSE Group, enabling its stock market to attract more of the estimated $3 trillion in funds that track the index provider's global benchmark indexes. The upgrade from the country's ``advanced emerging'' rating takes effect in September 2009, Mark Makepeace, chief executive of London-based FTSE, told reporters in Seoul. Investors who benchmark against FTSE's South Korea indexes may buy shares including Samsung Electronics Co., the world's biggest computer-memory maker, and Posco, Asia's third-largest steelmaker, to reflect the upgrade. Becoming a developed market may lead to as much as $16 billion flowing into South Korean stocks, bourse operator Korea Exchange Inc. said in a statement.

Thailand

Thailand's ruling party unified around Somchai Wongsawat, putting the relative of deposed Prime Minister Thaksin Shinawatra in position to become the country's 26th prime minister when lawmakers vote tomorrow. Somchai, 61, faced opposition from some in his People Power Party who backed the re-election of Samak Sundaravej, who was forced to step down last week after a court said he violated the constitution by hosting a cooking show. Somchai has the backing of the PPP-led six-party coalition, which controls 315 of 480 seats in the House of Representatives.

EMERGING EUROPE & CIS

Hungary

The impact of the global financial crisis on the Hungarian financial sector has been limited, Hungary's financial market watchdog PSZAF said in a statement on Friday. PSZAF said it had surveyed all segments of the financial sector asking institutions to report on their existing or potential business links or any potential losses related to battered foreign institutions. "Based on the data in the survey, banks' risk exposure to the international players affected by the crisis amounts to about 1.3 percent of the Hungarian banking sectors' 2007 equity, and within this the really risky portfolio is only 0.15 percent," PSZAF said. "Based on the survey, the U.S. subprime crisis has had a minor effect on Hungarian financial service providers, they operate in a stable and predictable manner," it said, adding that PSZAF continued to closely monitor the impact of market turmoil. Earlier on Friday, central bank Governor Andras Simor said the financial crisis, which this week saw Lehman Brothers filing for bankruptcy protection, Merrill Lynch losing its independence and the U.S. government bailing out insurer AIG, would not have a significant direct impact on Hungary. "I said and I am still saying that this financial crisis will have no direct significant impact on Hungary," Simor said.

Kazakhstan

Banks in Kazakhstan, holder of about 3 percent of the world's oil, aren't doing enough to guard against bad debts, the country's financial regulator said. ``The amount of money Kazakhstan's banks put aside to cover bad loans is at a minimum level'' compared with loan quality, Financial Supervision Agency chief Yelena Bakhmutova told reporters in the commercial capital Almaty today. Net income at Kazakhstan's 36 banks has fallen 47 percent this year as lenders put aside more money to cover bad loans, the agency said in a statement. Provisions rose 42 percent in the first eight months to 743 billion tenge ($6.2 billion), a reserve ratio of 8.2 percent, the watchdog said, without giving figures for individual banks. Kazakh economic growth halved in the first half to 5.4 percent as banks curtailed lending amid a global tightening of credit. The government said Sept.12 it plans to invest about $1 billion in distressed assets fund to help compensate banks for the depreciation of assets provided as collateral for loans. About 36 percent of all Kazakh loans are secured by property, Bakhmutova said. The quality of credits is ``under pressure'' because of a slowdown in construction and a decline in apartment prices, she said.
The global credit crisis may have shaken Kazakhstan's banks this year but the world's biggest bank HSBC sees a chance to crack a lucrative distant market long dominated by domestic players. Until a year ago, Kazakh banks tapped global debt markets aggressively to fund growth, making it too hard for Western banks to gain more footing. But the credit crisis has changed the landscape, leaving local banks scrambling for cash. Simen Munter, chief representative in Kazakhstan for HSBC, told Reuters it was an opportunity not to be missed in Central Asia's biggest economy and the region's top oil producer. "In the short term we clearly see that our competitors are struggling quite a lot. That's a very good opportunity for a foreign institution that has capital and appetite," he said. "You need to recognise that HSBC is a very conservative organisation. Clearly we're very selective... We see (Kazakhstan) at a growth story. We have appetite for good risk." He said HSBC, with its focus on emerging markets in Asia, opened its first branch in Kazakhstan in July to break into commercial banking and planned to open another two this year. "I think we'll open 10 branches by the end of next year," he said. "We aim to grow into a mid-size bank in Kazakhstan." Despite liquidity and refinancing concerns, Kazakhstan's banking sector, with most banks' profits still in the black, is an attractive emerging market investment destination.

Moldova

Fitch Ratings downgraded on Monday its credit rating for Moldova from positive to stable reflecting a deterioration in Moldova's external finances and continued inflation pressure, and affirmed Moldova's long-term foreign and local currency ratings at 'B-' and 'B', respectively. "The revision to a Stable Outlook reflects the deterioration in Moldova's external finances and continued inflationary pressures. The country has been hit by significant negative external shocks which have clouded the near-term outlook," Fitch said in a statement. Moldova's main foreign trade partner, Russia, dealt a heavy blow on the country's economy by banning Moldovan wine exports for most of 2006 and 2007 and by doubling the price of gas in 2006, and then further increasing gas prices to $253 for 1,000 cubic metres at present. In 2007 Moldova, one of the poorest countries in Europe, was hit by a drought that reduced sharply the agricultural output. "The impact of these shocks has been widely felt throughout the economy. The current account deficit widened to almost 18% of GDP in 2007 while Fitch estimates economic growth slowed to 3.0% in 2007. Inflationary pressure remains in double-digits," Fitch said. It added that Moldova remains susceptible to negative political and economic shocks in view of its high trade deficit, rising external debt burden, low external liquidity and exposure to trade with Russia with which it remains in dispute over the separatist province of Transdniestria. Fitch said that the Moldovan economy faces many structural weaknesses, including a large government sector and a poor business climate. Moldova's large trade deficit is partly offset by the remittances of the Moldovan migrant workers, which Fitch estimates at around 20% of the GDP last year. Moldova's net external debt burden is higher than the 'B' range median of 6.0%. Among positive factors, which support Moldova's ratings, Fitch cited the decreased government debt and small budget deficit last year. "Fitch believes parliamentary elections in 2009 could lead to fiscal pressures," it concluded.

Romania

The Romanian government on Thursday raised its gross domestic product forecast to 495 billion lei ($193.9 billion) from RON475 billion as part of its third revision of the budget this year, the Mediafax news agency reported. According to the report, the government maintained the budget deficit limit at 2.3% of GDP. Mediafax quoted a note approved by the government and presented by Economy and Finance Minister Varujan Vosganian as saying that the Justice and Public ministries will each receive RON1 billion, while the Agriculture and Interior ministries will receive RON750 million and RON600 million, respectively. The Transportation Ministry will receive EUR100 million, Vosganian said. In mid-July, the government revised this year's budget upward by RON842million due to higher-than-expected GDP at the end of the year, but kept its 2.3% of GDP budget deficit target unchanged. It then raised its GDP forecast to RON475 billion, from RON440 billion. Romania reported an economic growth of 8.8% in the first half of the year, driven by 9.3% growth in the second quarter, following a good agricultural year. The Romanian budget deficit was 0.64% of gross domestic product in the first seven months of 2008, finance ministry data showed, while in the first half of the year, the budget deficit stood at 1.18% of GDP.

Russia

Russia and China led the biggest rally in emerging-market stocks in at least two decades as authorities around the world took steps to shore up banks and prevent a further flight from riskier assets. Russia's ruble-denominated Micex Index jumped 25 percent and government bonds surged after President Dmitry Medvedev pledged $20 billion to end the nation's worst financial crisis since the 1998 default. China's CSI 300 Index jumped by a record 9.3 percent, led by Bank of China Ltd., after Beijing scrapped a stock-trading tax and said it will buy shares in three of the largest banks. The MSCI Emerging Markets Index jumped 6.9 percent to 820.73, the biggest gain since it was set up in 1987. Markets rebounded as the government measures added to $220 billion poured into the world financial system this week to encourage lending, while U.S. and U.K. regulators considered restricting investors from betting on stock declines. U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from financial companies into a new institution.
Ratings agency Standard & Poor's (S&P) cut its ratings outlook on Russia to stable from positive on Friday, citing concern about the country's response to the financial market crisis. Russia's long-term foreign currency rating was affirmed at BBB+, the agency added in a statement. "The outlook revision is based on growing uncertainty regarding Russia's economic policy response as the liquidity crisis in its financial markets has deepened," said S&P credit analyst Frank Gill in the statement. "If policy responses to a slowdown in the economy were to become more antagonistic toward foreign creditors, capital outflows would likely accelerate, undermining external liquidity and growth prospects," S&P said, adding that this could lead to downward pressure on the ratings.

Slovenia

Slovenia's opposition centre-left Social Democrats (SD) defeated the centre-right Slovenian Democratic Party of Prime Minister Janez Jansa in Sunday's parliamentary election, according to preliminary official results. Slovenia's parliament has 90 seats, of which two belong to representatives of Italian and Hungarian minorities. Following are key facts on the four parties that are likely to form a new government coalition.
SOCIAL DEMOCRATS (SD) - Likely to get 29 seats, the party has been the main opposition grouping during Jansa's rule and is led by European Parliament member Borut Pahor. Descendant of the former Communist Party, it pledges to liberalise the economy but also increase lowest salaries, provide more support for the elderly, jobless and sick, improve public health and cut defence sending. Has agreed coalition with fellow centre-left LDS and Zares.
ZARES - Nine seats. A centre-left party formed last year by seven parliament deputies who defected from the Liberal Democrats. Headed by Gregor Golobic, a close ally of late centre-left prime minister and former president Janez Drnovsek, it urges more market competition and further cuts in public spending.
LIBERAL DEMOCRATIC PARTY (LDS) - Five seats. Slovenia's strongest party for 12 years until it lost the 2004 election, after which it broke up. A newcomer to politics, lawyer Katarina Kresal, took the reins last year. Pledges to boost competitiveness of local economy by increasing research and technology spending.
DEMOCRATIC PARTY OF SLOVENIAN PENSIONERS (DESUS) - Seven seats. Although left-of-centre, party was a junior partner in Jansa's conservative government but has indicated it would be ready to join the new centre-left coalition. It demands higher pensions and better health care for the elderly. It is headed by Karl Erjavec who was Slovenia's defence minister for the past four years.

Turkey

Turkish stocks rose by as much as 14 percent on Friday to their highest level of the week, as sentiment was buoyed by U.S. authorities' plan for radical action to stem the effects of the global credit crisis. The lira also recouped the week's losses against the dollar on Friday while bonds firmed. The gains are the first since Turkish stocks fell more than 16 percent between Monday and Thursday to a three-year low, led lower on a wave of risk aversion by financial and insurance firms. Banking shares surged 17 percent, while Istanbul's main index closed 12.89 percent higher at 36,370.16 points, after rising as high as 13.75 percent earlier. Turkish stocks outperformed the emerging equities index which was trading 8.96 percent higher at 1405 GMT. The lira closed 1.6 percent stronger at 1.2530 against the dollar on the interbank market from the previous 1.2735. It was trading at 1.2485 in after hours trade. The lira is now back to where it traded before U.S. bank Lehman Brothers filed for bankruptcy protection and sparked panic sales in global markets. Bond prices rose and the yield on Turkey's April 14, 2010 benchmark bond fell to 19.20 percent from the previous day's 19.91 percent. Analysts said the markets' rally could continue in the coming week depending on the developments in the United States.

Ukraine

Ukraine's central bank said it will be able to keep the hryvnia's exchange rate within the planned limits for this year and widen the corridor the currency may trade to 10 percent from next year. The Natsionalnyi Bank Ukrainy will allow the currency to rise or fall 4 percent from a midpoint of 4.85 against the dollar to the end of 2008, Petro Poroshenko, head of the bank's council, said at a press conference in Kiev. The bank, which kept the hryvnia at 5.05 from April 2005 until May this year, will widen the range to five percent on either side of the midpoint from 2009, he added.
Ukrainian soccer officials have assured UEFA that the country's political problems will not affect preparations for co-hosting the 2012 European championships, the country's soccer federation said on Friday. A dispute between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko split the coalition this month. Unless a new one is formed, Ukraine may hold its third parliamentary election in as many years. UEFA, the European governing body, is due to decide next week whether to take the championships away from Ukraine and co-hosts Poland after criticising for months progress on building stadiums and modernising infrastructure.

INDUSTRIAL COUNTRIES

Iceland

Iceland's economy faces a difficult turning point amid foreign financing constraints, and economic activity is set to come to a standstill this year and contract in 2009-2010, the International Monetary Fund said on Friday. The IMF, in its annual assessment of Iceland's economy, urged the authorities to maintain a tight monetary policy stance to contain inflation and bolster confidence in its currency, the crown. "The authorities face the challenge of facilitating an orderly rebalancing process, while mitigating risks," the IMF said. Global market turmoil has taken a toll on Iceland's markets since the end of 2007 and its currency has depreciated by over 40 percent, forcing prices to rise. The IMF said the currency was "somewhat below its equilibrium level" and a further decline in the crown could fuel inflationary pressures, erode households' purchasing power, and squeeze private sector balance sheets and pressure the capital account. IMF "directors therefore saw little or no scope for monetary easing until inflation is placed firmly on a downward path," the fund said, while calling on the authorities to carefully manage domestic liquidity. As the global credit crisis has escalated, Iceland's three largest banks have slowed lending growth, consolidated funding needs, withdrawn from marginal markets, and mobilized retail deposits abroad, although their ability to deleverage has been limited by global risk aversion.
The IMF urged Iceland's authorities to "pursue vigorously policy actions to mitigate banking sector risks". It said measures to enlarge capital cushions and boost liquidity buffers could restrain the growth of banks' balance sheets.

• Download Full Emerging Markets Weekly

Published on  Mon, Sep 22 2008, 11:00 GMT

China's inflation weakened to the slowest pace since June 2007 and export growth cooled

Mon, Sep 15 2008, 08:54 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina will buy back up to 100 million pesos ($33 million) worth of local bonds tomorrow to shore up the debt, the Economy Ministry said in a statement. The buyback is part of the government's plan announced last month after bonds plunged on concern tax revenue growth is slowing and inflation is accelerating.

Brazil

Brazil's economy had its second fastest expansion in four years in the April-through-June period, cementing expectations policy makers will raise interest rates to the highest in two years when they meet later. Gross domestic product, the broadest measure of a country's production of goods and services, grew 6.1 percent from a year earlier, beating all forecasts in a Bloomberg survey of 36economists whose median estimate was 5.5 percent. Growth accelerated from the revised 5.9 percent pace in the first quarter, the national statistics agency said.

Chile

Chile's trade surplus narrowed less than economists expected last month as export growth accelerated. The surplus narrowed to $780 million in August from $1.7 billion in July, the central bank said. Exports rose 22 percent to from a year earlier to $6.3 billion, the fastest annual pace since last October, while imports rose 33 percent from a year ago to $5.5 billion, the slowest annual pace since March.
Chile's inflation rate will end 2008 at 8.5 percent, more than the 8.0 percent forecast last month, according to a monthly central bank survey of economists. The inflation rate will end 2009 at 4.9 percent, compared with a forecast of 4.5 percent made a month earlier, according to the median estimate of 31 economists in the Sept. 2-8 poll published on the central bank's Web site.

Colombia

Colombia's President Alvaro Uribe said economic growth could slow to under 4 percent this year, an ``unpleasant surprise,'' that cannot be ruled out. Uribe said that without an interest rate cut the economy could slow more than expected and hinder job creation, according to comments e-mailed last night. The unemployment data in July was ``a warning signal,'' Uribe said. The government forecasts economic growth of 5 percent for 2008. The central bank should consider cutting the overnight interbank rate, which stands at 10 percent after 16 increases since April 2006, Uribe said. Colombia's inflation rate is among the lowest in Latin America ``despite recent increases.'' Annual inflation quickened to 7.87 percent in August, above the central bank's target range of 3.5 percent to 4.5 percent.

Ecuador

Ecuador signed an accord with Iran for the middle-eastern country to help with the renovation and building of refineries and the construction of a petrochemical plant, the Iranian Oil Ministry said. Ecuador's Mines and Oil Minister Galo Chiriboga and Iranian Oil Minister Gholamhossein Nozari signed a letter of understanding to ``expand cooperation in the oil industry,'' the official news agency Shana reported on its website. In addition to the cooperation on refineries and the petrochemicals plant, Iran has also said it will help train Ecuador's oil industry employees, Shana said.
Ecuador's economy will likely expand 5.2 percent in 2008, central bank President Carlos Vallejo said. The county's economy will accelerate from the first quarter's 1.3 percent expansion, Vallejo said in Quito, and the economy may grow as much as 8 percent in 2009. The bank's president also said that the government wasn't considering dropping dollarization.

Peru

Peru had a $300.4 million trade surplus in July, the country's national statistics institute said in an e-mailed report. Exports rose 11.7 percent from a year earlier to $2.98 billion. Imports jumped 55.9 percent to $2.68 billion, the agency said. The trade balance was higher than the $250 million median estimate in a Bloomberg survey of 11 economists.
Peru's central bank President Julio Velarde raised the overnight lending rate for the seventh time in 12 months in a bid to slow the fastest inflation in a decade. The bank increased borrowing costs by a quarter percentage point to a seven-year high of 6.5 percent, as forecast by 14 of 16 economists in a Bloomberg survey. Annual inflation in Peru is more than double policy makers' target of no more than 3 percent.

Venezuela

Venezuelan President Hugo Chavez is welcome to fly on one of two Russian strategic bombers that landed in Venezuela yesterday, a Russian air force commander said. ``If they ask nicely, we'll ensure him a safe ride and give him a bird's eye view of the Caribbean,'' Gen. Pavel Androsov, the head of Russia's long-range air force, said in Moscow today in comments posted on the Web site of state broadcaster Vesti 24. The TU 160 planes will conduct training flights for several days over neutral waters, the Russian Defense Ministry said.

AFRICA & MIDDLE EAST

Egypt

Egypt's balance of payment surplus in the fiscal year that ended June 30 rose 1.9 percent to $5.4 billion, Al- Ahram newspaper reported, citing Central Bank Governor Farouk Okdah. The balance of payment was boosted by an increase in revenue from tourism, the Suez Canal and remittances from abroad, the Cairo-based state-run newspaper reported.
Egyptian inflation accelerated to an annual 23.6 percent in August, the fastest pace since 1992, putting pressure on the central bank to increase interest rates for a sixth time this year. Urban inflation accelerated from 22 percent in July, the Cairo-based Central Agency for Public Mobilization and Statistics said in a faxed statement.

Kenya

Kenya's inflation rate may drop below 20 percent by January and continue to fall next year, the central bank said. Inflation was being driven by ``supply-side shocks'' such as higher food and oil prices, and not growth in money supply, central bank Governor Njuguna Ndung'u said in an e-mailed statement from Nairobi. As a result, using ``central bank instruments'' to curb inflation won't be effective, he added. ``Inflation is not spiraling out of control and the economy is in robust shape,'' Ndung'u said. Kenya's inflation accelerated to 27.6 percent last month from 26.5 percent in July, mainly as a result of higher electricity tariffs and fuel prices. The Central Bank of Kenya left its benchmark interest rate unchanged at 9 percent on Aug. 6, after raising it by a quarter point in June.

Nigeria

Nigeria plans to sell sovereign bonds worth $500 million to provide funding for infrastructure projects, Information Minister John Odey said. Approval for the 10-year bonds, to be raised from the international capital market, was given yesterday by President Umaru Yar'Adua's government, Odey said on state-owned Nigerian Television. ``It would be a means of raising substantial capital needed to finance infrastructure,'' Odey said. ``Also, a sovereign bond issuance will serve as benchmark for subsequent issues by the federal government.''
Nigerian militants said they destroyed Royal Dutch Shell Plc's Soku gas plant and Chevron Corp.'s Kula oil pumping station in overnight attacks. The Movement for the Emancipation of the Niger Delta, or MEND, said in an e-mailed statement that it had also attacked other oil facilities.

South Africa

South African manufacturing growth slowed to an annual 3.3 percent in July as higher interest rates damped consumer spending. Growth in factory output, which accounts for 16 percent of the economy, eased from a revised 5.7 percent in June, Pretoria- based Statistics South Africa said on its Web site. Output fell a seasonally adjusted 0.4 percent in the month. Sales of cars and furniture have tumbled after the central bank began increasing the benchmark interest rate to cap inflation, raising it six times to 12 percent since June 2007.

ASIA

China

China's inflation weakened to the slowest pace since June 2007 and export growth cooled, adding to speculation the government will cut taxes and ease loan restrictions to spur the world's fourth-largest economy. Consumer prices rose 4.9 percent in August from a year earlier, less than economists estimated, after gaining 6.3 percent in July, the National Bureau of Statistics said. Exports rose 21.1 percent in August, down from July's 26.9 percent gain, the Customs Bureau said. Stocks rose on expectations China may lower taxes, slow the pace of the yuan's appreciation and ease lending restrictions to protect jobs at exporters and small businesses after four quarters of slowing economic growth. Cooling inflation also leaves more room to raise state-controlled energy prices and reduce subsidies. ``The good news is that the price pressures that have been bothering China over the past 18 months have been decisively subdued,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``The bad news is that perhaps this reflects the economy has slowed more than the government bargained for.''

Philippines

The Philippines may likely opt not to issue more sovereign debt this year and cut its domestic borrowings for the rest of the year due to its healthy cash position, National Treasurer Roberto Tan said on Tuesday. "We will study our cash position," Tan told reporters. "Right now, we have healthy levels." Tan said the government would make a final decision on its overseas borrowings for the rest of 2008 by the end of the month or early October.
Remittances from Philippine citizens working overseas rose at a slower pace in July. Money sent back to the Philippines increased 24.6 percent from a year earlier to $1.37 billion, the central bank said in a statement in Manila. Remittances grew 30 percent in June.

South Korea

North Korean leader Kim Jong-il fell seriously ill in April, sometimes losing consciousness at work and unable to rule on important policy matters, the Mainichi daily reported on Sunday, citing a "reliable" Chinese source. The Japanese newspaper said Kim's poor health was apparently behind the lack of flexibility in North Korea's recent attitude towards the six-party dialogue over its nuclear programme. Kim, 66, had been making all decisions on the country's nuclear policy, the source told Mainichi, and after his health worsened there was no one who could make major diplomatic moves. This raised speculation that hard-line military figures had increased their clout in the leadership ranks. North Korea's official media had reported no public appearance by the reclusive "Dear Leader" since mid-August, but Kim's failure to attend last Tuesday's triumphal military parade marking the state's 60th anniversary made worldwide headlines. Speculation swirled that he had suffered a stroke, was gravely ill or even that he had been dead for years and replaced by lookalikes for state occasions.

Thailand

Following are five facts about Thailand's new Prime Minister-in-waiting, Somchai Wongsawat:

- Somchai, 61, is best known as the brother-in-law of former prime minister Thaksin Shinawatra, ousted in a coup two years ago. Somchai's wife, Yaowapa Wongsawasdi, was an influential MP in her older brother's Thai Rak Thai party before it was disbanded after the putsch.

- A law graduate and appeals court judge, most of his top government experience was as Permanent Secretary of the Justice Ministry from 1999 to 2006 and then briefly in the same position at the Labour Ministry. He served as Education Minister and Deputy Prime Minister in the cabinet of Samak Sundaravej, who was sacked last week by the Constitutional Court.

- His relationship with Thaksin has led to frequent cries of nepotism, especially when several justice ministers with whom he clashed lost their jobs. He countered such accusations by noting his Justice Ministry appointment came two years before Thaksin came to power.

- As well as his senior positions within the bureaucracy, he also sat on the board of several state-owned firms, including Airports of Thailand, national petroleum company PTT and Krung Thai Bank.

- Bespectacled and softly-spoken, Somchai has seldom had to endure the glare of the television cameras and appeared nervous and unsure of himself as he chaired a People Power Party (PPP) news conference last week.

EMERGING EUROPE & CIS

Hungary

Hungary's inflation slowed more than expected in August creating some room for the central bank to ease monetary policy but analysts said the bank will likely maintain its wait-and-see approach in the near term. Consumer price inflation slowed to 6.5 percent in August from 6.7 percent in July and came below analysts' forecast for 6.65 percent on falling food and car fuel prices. Hungary's data mirror Czech figures released on Monday which showed inflation slowed on a decline in food and fuel price rises, while prices rises in neighbouring Slovakia are also expected to have peaked after a surge. "In the upcoming months the central bank could stick to its wait-and-see approach, but if inflation data does not disappoint during the autumn months and markets remain stable, the first cut could come as early as November," CIB Bank analyst Mariann Trippon said.

Kazakhstan

Kazakhstan's government aims to double the size of the $100 billion economy through 2011, the Economy Ministry said today. Gross domestic product will rise to 24.13 trillion tenge ($201.8 billion) in 2011 from 12.85 trillion tenge last year, the ministry said in an e-mailed statement. The economy has grown an average 10 percent a year since 2000 as surging oil prices sparked a construction boom. GDP expanded 5.4 percent this year through June, half the pace of the same period last year, as banks curtailed lending because of the global tightening of credit. The expansion in Kazakhstan, which borders Russia, China and the Caspian Sea and holds 3.2 percent of the world's proven oil reserves, will be between 5 percent and 7 percent a year, taking into account a Brent crude oil price of $60 per barrel, the ministry said.

Romania

Romania's centrist opposition Democrat-Liberal Party (PD-L), front runner for the Nov. 30 general election, pledged on Friday to prepare the country for euro adoption by 2014 and keep its flat tax, while boosting welfare. Policy-makers in Romania struggle to shore up public finances and fight a vast trade gap and inflation, while easing poverty and improving ramshackle infrastructure and public services. All leading parties are promising to raise spending on the poorest, increase state pensions and oversee fast wage growth, despite economists' warnings that such measures could destabilise the overheated economy in the long-term. At the same time, there is little discussion over changing Romania's 16 percent tax rate or delaying euro entry targets, even though analysts say these goals will require additional fiscal austerity. "Our living standards are far behind the EU," said Theodor Stolojan, 64, a former prime minister and the PD-L candidate for premier. "And vulnerability is increased because of the imbalances in foreign trade and a pick-up in inflation." The PD-L, closely linked to centrist President Traian Basescu, is hoping to return to power after its coalition with the ruling Liberal Party of Prime Minister Calin Tariceanu collapsed last year amid policy disagreements. Opinion polls show its popularity at nearly 40 percent, which would allow the party to win the election by a narrow margin, but without gaining majority in parliament that would allow it to govern alone.

Russia

Russia could invest up to half of its National Wealth Fund (NWF) in shares plus a further 30 percent in corporate bonds, including ones from emerging markets, Deputy Finance Minister Dmitry Pankin said on Monday. "If the financial strategy will be adopted according to our proposal...we can see that we have a substantial amount of money for 10-15 years to be invested in long-term instruments. In that case, up to 40-50 percent could be invested in shares," Pankin said at the Reuters Russia Investment Summit. "And a substantial proportion could be invested in corporate bonds, maybe 30 percent," he said. The Finance Ministry must submit its proposals for NWF's investment strategy to the government by Oct. 1. It has already suggested that NWF will contribute 0.6 percent of GDP per year to support the pension system. Pankin said that over the long term, shares provided higher returns than government debt, and that income could further be boosted through geographical diversification. "My feeling is that it could be possible to include not only G8 shares and G8 currencies, but a wider area, including emerging market equity and currencies," he said. "If we have a portfolio with a huge variety of different instruments, it's possible to get the same level of risk...with a higher return. It would be reasonable to include a high variety of different instruments: maybe derivatives, why not." He did not exclude the possibility of some of the fund being used for direct rather than portfolio investments, but said that would not be more than five percent of the total cash pot. The NWF could grow to around $100 billion by year end, depending on the oil price, according to Pankin, from $31.9 billion at the start of this month. He said that the fund could start making its first purchases under the new investment strategy as soon as the first half of next year, and that it would likely take about six months to set up an agency to run the scheme. The agency would likely employ around 50 people, and will assess which Russian and international investment banks should be hired to manage the money.
Russia's economy expanded at a slower pace in the second quarter as high borrowing costs crimped industrial output and the strong ruble hurt domestic producers. Gross domestic product grew 7.5 percent, compared with 8.5 percent in the previous three-month period, the Moscow-based Federal Statistics Service reported in an emailed statement. The figure is not seasonally adjusted. The median forecast of 10 economists surveyed by Bloomberg was for growth of 7.6 percent. The economy grew 8.1 percent in the second quarter of 2007.
Investors in Russia have withdrawn about $35.3 billion since the country invaded neighboring Georgia and waged a five-day war, sending stocks, the ruble and government bonds lower, BNP Paribas SA said. Russia sent troops into the former Soviet republic on Aug. 8 after reports Georgian troops had attacked Russian peacekeepers and citizens in the breakaway region of South Ossetia. The ruble fell 5.2 percent against the dollar in August, its biggest monthly drop in more than nine years, and the dollar-denominated RTS stock index has tumbled 25 percent since the invasion.

Turkey

Turkey's economy grew at the slowest pace since the country emerged from a recession six years ago as higher interest rates and the threat of political instability hurt consumer spending. Gross domestic product growth slowed to 1.9 percent from a revised 6.7 percent in the previous quarter, the state statistics office in Ankara said on its Web site. The economy was expected to expand by 3.7 percent, according to the median estimate of 15 economists surveyed by Bloomberg. The pace of growth in the European Union membership candidate slowed as the global credit squeeze damped demand in export markets and the central bank added to the cost of borrowing.

Ukraine

The European Union pledged to tighten economic and political ties to Ukraine, while refusing to put the crisiswracked ex-Soviet republic on a path to join the bloc. French President Nicolas Sarkozy, representing the EU, made the offer to Ukrainian President Viktor Yushchenko, now locked in a power struggle with his own prime minister that may determine whether Ukraine embraces Western democracies or falls under Russia's sway. EU leaders said the outreach is designed to help create a western anchor for the country of 46 million people in the wake of Russia's efforts to recover regional influence that evaporated after the Cold War.
Ukraine has contracts in place to ship Caspian oil to domestic refineries and to European markets, a presidential aide said, rejecting government claims that the project is unworkable. ``Agreements have been reached between Ukrainian representatives and oil suppliers'' to send Caspian crude through the Odessa-Brody pipeline, Bohdan Sokolovskyi, the presidential official responsible for energy security, said at a press briefing in Kiev. Disputes in Ukraine over using the link are damaging the country's reputation as a reliable energy supplier, he said.

INDUSTRIAL COUNTRIES

Iceland

Iceland's central bank left interest rates steady at a record 15.5 percent on Thursday and said it would keep policy tight until it saw decisive signs soaring inflation had begun to fall towards target. Fresh growth figures, which showed the economy rebounded in the second quarter, gave support to the firm stance and the central bank said inflation -- at 14.5 percent in August -- could take longer to fall back than it had thought in July. Investors watch Iceland's economy closely because, although it is relatively small in global terms, its high interest rates attract volatile investment flows. "It is necessary to keep the policy rate high until inflation and inflation expectations have begun to move decisively toward the inflation target," the central bank, Sedlabanki, said in a statement.

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Published on  Mon, Sep 15 2008, 08:54 GMT

Brazil's industrial production expanded faster than forecast by economists in July

Mon, Sep 8 2008, 09:23 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's government will negotiate with local banks and pension funds to refinance about $6 billion in debt due in 2009 and 2010, La Nacion said, without identifying where it obtained the information. Officials in the economy ministry are studying the possibility of exchanging so-called guaranteed debt issued in 2001, just before the country defaulted on $95 billion in bonds, for bonds that mature after 2010, La Nacion said. Refinancing the debt may help the country reduce its obligations during the next two years by 15 percent, La Nacion said. President Cristina Fernandez de Kirchner announced Sept. 2 that Argentina will use central bank reserves to pay back about $6.7 billion in debt to the Paris Club, an informal association of creditors whose members include Japan, Germany and the U.S.

Brazil

Brazil's industrial production expanded faster than forecast by economists in July, cementing expectations that the central bank will raise interest rates further next week. Output rose 8.5 percent from a year ago, more than the revised 6.4 percent increase in June and more than the 8 percent median forecast in a Bloomberg survey of 32 economists.

Colombia

Colombia lifted requirements that foreign investors must deposit 50 percent of their stock and convertible bond investments in the central bank for six months or pay a fine. Colombia also lifted its two-year requirement for foreign direct investment, the Finance Ministry said today in an e-mailed statement.

Ecuador

Ecuadorean consumer prices rose 0.21 percent in August from the previous month. Consumer prices climbed 10 percent last month from the same month a year earlier, Byron Villacis, director of the South American country's National Statistics and Census Institute, told reporters in Quito. President Rafael Correa has said he wants to keep annual inflation less than 10 percent this ear.

Mexico

Mexico's Finance Minister Agustin Carstens said violence and a lack of security cost the country 1 percent of its gross domestic product each year, El Universal newspaper reported. Lost sales, jobs and investments because of crime subtract 100 billion pesos ($9.6 billion) from GDP, the newspaper reported citing comments from Carstens at a press conference in Morelia, Michoacan.
Mexican workers' remittances fell 6.9 percent, the most ever, in July from a year ago, the central bank said. Money sent from abroad declined to $2.02 billion last month, the bank said on its Web site. The decline was the largest since the bank began measuring the amount in 1995. Remittances, which totalled $24 billion last year, are the second-biggest source of dollar flows to Mexico after revenue from oil exports.

Venezuela

Venezuela's government had a 3.27 billion-bolivar ($1.5 billion) budget deficit in the first half of 2008, according to a budget report published on the central bank's Web site. The government posted a deficit in five out of the first six months of the year, according to the report.

AFRICA & MIDDLE EAST

Angola

The leader of Angola's largest opposition party said on Sunday he was contesting the results of the country's parliamentary election, which showed the ruling party headed for a landslide victory. The dispute over the poll, the first to be held in 16 years, threatens to shatter the fragile political stability that has existed since the end of Angola's civil war in 2002 and could dent the oil-rich nation's standing among foreign investor. The international community has been watching the vote closely after tarnished elections in Zimbabwe and Kenya, hoping that the former Portuguese colony would defy its own history and emerge from the election with political consensus. UNITA leader Isaias Samakuva, however, said the two-day vote had been badly flawed, with polling stations opening late or not at all and officials failing to properly confirm the identify of voters on registration lists. He vowed to contest the results. "The facts suggest that the final results of this election might not rigorously reflect the wishes expressed in the ballot box by the Angolan people," Samakuva told a news conference at his party's office in the capital Luanda.

Ghana

Ghana's state-owned cocoa board signed a $1 billion trade-finance facility with 23 international banks for the purchase of beans from growers in the 2008-09 season. The agreement was signed in the capital, Accra, by Isaac Osei, the chief executive officer of the board, and representatives of lenders including Societe Generale and Standard Chartered Plc.

Kuwait

Ratings agency Fitch upgraded Kuwait on Wednesday, saying higher oil prices this year had led to a rapid accumulation of reserves. Fitch said it had upgraded the foreign currency rating to AA from AA- and affirmed the local currency long-term rating at AA, with outlooks on both remaining stable. "High oil prices have generated a large revenue windfall, which Kuwait has largely used to strengthen its external balance sheet," said Charles Seville, associate director of Fitch's sovereign group. "Kuwait ran a fiscal surplus of over 40 percent of GDP in the fiscal year ending in March 2008." Fitch said in a statement the net public external creditor position was as strong as any sovereign rated by the firm, including Abu Dhabi, which is substantially wealthier in per capita terms.

Nigeria

Nigerian President Umaru Yar'Adua is well enough to manage the country's affairs, the Information Ministry said, following reports that the 57-year-old leader has been hospitalized in Saudi Arabia. ``He is in good health to steer the affairs of the state,'' Information Minister John Odey said in a statement read on state-owned Nigerian Television late yesterday.

South Africa

South Africa's current account deficit narrowed to 7.3 percent of gross domestic product in the second quarter as power outages eased, boosting gold and platinum exports. The shortfall, the broadest measure of trade in goods and services, shrank from a revised 8.9 percent of GDP in the previous three months, the Pretoria-based Reserve Bank said in its Quarterly Bulletin.
South Africa's economic growth outlook is ``quite a bit weaker,'' with the economy likely to expand about 4 percent this year, Fitch Ratings said. Foreign investment in stocks and bonds to fund the widening current account deficit has also reversed, which may require the government to increase borrowing, boosting the country's external debt, Tertius Smith, managing director of Fitch Southern Africa, said in a speech in Johannesburg.

United Arab Emirates

Dubai's real estate market increasingly faces the chance of a sharp correction as signs of overheating emerge, Saudi Arabian bank Samba said in a report released on Sunday. "Signs of overheating are emerging, fuelled by expansionary monetary conditions and high oil prices," Samba Financial Group said in the report. "This is raising the risk that a significant imbalance may develop over the next two years as scheduled new supply comes on to the market, increasing the prospect of a -- possibly sharp -- market correction." Shares in Dubai property firms have plunged in recent trading sessions, with the biggest listed firm, Emaar, falling on Sunday by around 8 percent to hit a 3-1/2 year low. Investors have fled the Dubai property sector in recent weeks in the wake of corruption investigations and confusion over visa rules for expatriate homebuyers. Samba said it expected the sector to enter a cyclical weak phase in 2009-2010. "Soaring property price increases over the last five years, have attracted increasing supply which will eventually exceed demand," the bank said.

ASIA

Hong Kong

Hong Kong's opposition pro-democracy parties scored a surprise success on Monday in legislative elections, winning enough seats to retain their veto power and influence over future political reforms. The pro-democracy camp that includes the Democratic Party, Civic Party and harder-line factions, clinched 23 of the 60 seats. That is two less than the 2004 polls, but enough to ensure they maintain crucial control of one-third of the legislature. Sunday's polls were the most fiercely contested since Hong Kong reverted from British to Chinese rule in 1997. A record number of candidates festooned the city in banners and courted last-minute swing votes by foot and open-top vehicles. The pan-Democrats won 19 of the 30 directly elected geographical constituencies and four seats in the so-called functional constituencies, mostly commercial groups that are traditionally dominated by pro-Beijing forces.

Indonesia

Indonesia's central bank raised its key interest rate on Thursday by 25 basis points to 9.25 percent, the fifth increase in 2008 although analysts say it may be the last this year as inflation has probably peaked. Ten of 16 analysts polled by Reuters had expected the central bank, Bank Indonesia (BI), to raise its overnight policy rate by 25 basis points to 9.25 percent. Six predicted no change. The expected 25 basis point hike did not have a significant impact on financial markets. The rupiah was steady at 9,200 per dollar, while stocks remained in negative territory. The bond market also largely shrugged off the rate hike. "Economic growth is not too worrisome because we have seen a high growth rate in the first and second quarters, so the real issue lies in inflation management ... if we can manage inflation, household purchasing power will be strong enough," said economist Eric Alexander Sugandi of Standard Chartered Bank. August consumer prices rose 11.85 percent over a year earlier, a modest easing from July's annual pace of 11.9 percent, which was the highest level in almost two years. However, the data marked the first fall in annual inflation in seven months, underlining a view that inflationary pressures, led by the soaring cost of raw materials and food, may have peaked despite the onset of the Muslim celebration of Ramadan.

Malaysia

Malaysia's widening budget deficit is a ``matter of concern'' as a growing opposition challenge forces Prime Minister Abdullah Ahmad Badawi to spend more to bolster support, said Standard & Poor's. ``The fiscal trajectory of Malaysia is a little bit worse than, for example, half a year ago,'' Takahira Ogawa, director of sovereign ratings at S&P' in Singapore, said in an interview. ``Malaysia's fiscal consolidation is very slow. If the large size of the fiscal deficit is difficult to consolidate in the medium term, then it will be a bigger issue.''

Pakistan

Pakistan's Asif Ali Zardari is set to take over as president of a country with the world's riskiest debt, the weakest currency in its history and a stock market so depressed that the exchange ordered a freeze on price declines. ``I mean business and will pull Pakistan out of its present state of affairs,'' Zardari told the News newspaper after being elected Sept. 6 by Parliament where his Pakistan Peoples Party has a majority. While Zardari has pledged to continue a decade of economic liberalization, he has given no details. Zardari's swearing-in tomorrow may end 18 months of government paralysis caused by his power struggles with former president Pervez Musharraf and ex-prime minister Nawaz Sharif, whose Pakistan Muslim League is the second-largest party. International investors have fled a stock exchange that has nearly halved in value this year, the second-worst performance in Asia after China.

Philippines

BSP Gov Tetangco is optimistic that continued strong OFW remittances will help boost the country's foreign reserves and keep the balance of payments in surplus in 2009. BSP expects remittances to rise 10% y/y to a record $15.9bln this year. Tetangco sees fx reserves to climb higher in 2009 to above the estimated $37bln in 2008. He expects the BoP surplus at $2.5 bln for the full year in 2008 from $2.1bln in the Jan-July period, though it would mark a sharp fall from $8.6 bln in 2007. Elsewhere Fin Sec Teves said the govt expects to raise $1.1 bln from official development loans and $1.5 bln of sovereign debt in 2009.
The Philippines has ended peace talks with the country's largest Muslim rebel group, the president's spokesman said on Wednesday, ending an 11-year peace process that has been marred by violence and disagreement. Manila has dissolved its negotiating panel and will shift its peace policy towards wider and more direct dialogues with local communities in the south of the mainly Catholic state, said Jesus Dureza, also a former peace adviser.
The Philippine central bank said the smallest gain in the nation's inflation rate in 10 months was ``positive'' for consumer prices, suggesting that interest-rate increases may be nearing an end. Consumer prices climbed 12.5 percent in August from a year earlier after rising a revised 12.3 percent the previous month, the National Statistics Office said in Manila.

South Korea

Korea Development Bank is in talks to buy a stake in Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm, as Asian investors shore up Wall Street firms beaten down by the global credit squeeze. Lehman climbed as much as 5 percent in Frankfurt trading after Korea Development Chief Executive Officer Min Euoo Sung confirmed the discussions in an interview in Seoul.

Thailand

Thai lawmakers may speed up plans for a plebiscite to resolve the country's political standoff, Prime Minister Samak Sundaravej said, as protesters occupied his office for a 12th day. ``Parliament is looking at'' the referendum, Samak said in an address to the nation. The process would normally ``take 90 days but there are ways to fast-track it.'' Thailand's Cabinet agreed last week to hold the vote after Samak reaffirmed he would not yield to demands for his resignation from the People's Alliance for Democracy. Bangkok remains under a state of emergency after clashes on Sept. 2 between pro- and anti-government protesters.

EMERGING EUROPE & CIS

Hungary

Hungary posted a trade deficit of 238.6 million euros in July according to preliminary data after a surplus of 89.7 million euros in June, the Central Statistics Office (KSH) said on Monday. The July deficit exceeded analyst forecasts for 120 million euros in a Reuters poll and was also above a deficit of 115.4 million euros posted a year earlier. For the first seven months, the trade account showed a surplus of 227 million euros versus a deficit of 281 million in the same period a year earlier.

Kazakhstan

Kazakh President Nursultan Nazarbayev told the government to create a ``stressed assets fund'' as assets provided to banks as collateral for loans lose value, threatening the country's banking industry. The diminishing value of assets put up as collateral ``doesn't allow banks to recoup their expenses,'' Nazarbayev told lawmakers in the capital Astana. State development holding Kazyna and international financial institutions will work on creating the fund, he said, according to the text of his remarks posted on the presidential Web site.

Romania

Romania's unadjusted industrial output fell 1.4 percent on the month in July, but advanced 5.1 percent on the year, statistics office data showed on Friday. Romania's economy expanded by 9.3 percent in the second quarter, its fastest rate in almost 4 years. It is expected to grow at around 8 percent this year.

Russia

Russia's Economy Ministry may change the terms of its trade agreements with Ukraine because of the Black Sea nation's entry into the World Trade Organization, said a ministry official with direct knowledge of the review. The changes may affect free trade with Ukraine, including food and plant imports and other goods, the official said on condition of anonymity, citing ministry policy.

Turkey

Turkey's central bank will consider all possibilities including cutting interest rates when its monetary policy committee meets this month, Governor Durmus Yilmaz said. Bond yields fell by the most in almost three weeks. The committee will ``evaluate all policy options, including a measured cut'' on Sept. 18, Yilmaz said at a televised conference in the northern city of Trabzon. That doesn't mean a shift to being ``dovish from hawkish,'' he said. The bank in August halted three months of increases that pushed the benchmark rate up to 16.75 percent, higher than any in Europe.

Ukraine

Ukraine's Prime Minister Yulia Tymoshenko accused President Viktor Yushchenko on Saturday of putting his political ambitions before the national interest, adding to the bad blood between the former allies. In an open letter, Tymoshenko said that Yushchenko was unable to change his ways and had his eye on winning a presidential election in 16 months' time. A coalition of his and her parties that supported the 2004 "Orange Revolution" that brought Yushchenko to power collapsed last week after ruling for only nine months. The former allies argued over almost all policy issues during that time. Yushchenko and his party accused the prime minister of betraying Ukraine by siding with Russia in its war in Georgia, a charge she denies. "If I were thinking not about the national interest, but about the next presidential election -- as you are -- I could also set you hundreds of ultimatums," Tymoshenko wrote. "Apologise to me and the government of democratic forces for the absurd accusations of high treason and your various fantasies of 'Kremlin scenarios'," would have been one of her ultimatums. "However, Viktor Andreevych (Yushchenko), I will not pose any ultimatums, because I know that the nature of some people cannot be changed." Both are expected to run for the presidency, along with former prime minister Viktor Yanukovich who was defeated by Yushchenko in 2004. Polls show Yushchenko lagging far behind Tymoshenko and Yanukovich, with just 7 percent support. Yushchenko's Our Ukraine party left the coalition after Tymoshenko's bloc and a rival party mustered a large majority in parliament to pass laws that reduced Yushchenko's powers.
Ukraine's foreign currency and gold reserves rose in August more slowly than in the previous month as the central bank bought less on the interbank market. Reserves were up 0.4 percent, to $38.1 billion, compared with growth of almost 7 percent a month earlier, the central bank said in a statement on its Web site. The Natsionalnyi Bank Ukrainy bought $1.21 billion in August, compared with $2.49 billion in July, according to the statement.

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Published on  Mon, Sep 8 2008, 09:23 GMT

Chile's economy expanded faster than expected in the second quarter

Mon, Sep 1 2008, 11:06 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's trade surplus widened in July to $1 billion from $517 million in the same month a year earlier, the National Statistics Institute said in a statement. Exports rose 53 percent to $7 billion while imports rose 46 percent to $6 billion, the institute said in Buenos Aires.
Argentine doesn't plan a new offer to investors who refused to accept the terms of a 2005 restructuring of defaulted debt, Cabinet chief Sergio Massa said. Massa spoke to reporters in Buenos Aires.

Brazil

Brazilian bank lending expanded last month at the slowest pace since February as rising interest rates made borrowing more expensive and damped the consumer spending that has driven growth to record levels. State and non-state bank lending climbed to 1.086 trillion reais ($669.5 billion) last month, a 1.7 percent rise from a revised 1.068 trillion reais in June, the central bank said in a statement distributed in Brasilia. Lending rose 32.7 percent from the year-earlier month. Monetary policy makers have raised benchmark interest rates three times since April, to 13 percent from a record low 11.25 percent, in a bid to cool domestic demand and inflation.
Brazil's Treasury lowered its target for total debt this year as part of a revision to its financing plan prompted by the country's economic expansion. The Treasury set its target for total debt this year to between 1.36 trillion reais ($833.4 billion) and 1.42 trillion reais, below a previous target of 1.48 trillion reais to 1.54 trillion reais. ``Strong economic indicators, especially the government's elevated fiscal surplus, is allowing greater flexibility in debt management,'' the Treasury said in an e-mailed statement.

Chile

Chile's economy expanded faster than expected in the second quarter, giving the central bank room to raise interest rates to stem inflation. Chile's gross domestic product grew 4.3 percent in the second quarter, up from a revised 3.3 percent in the first quarter, the Santiago-based central bank said on its Web site.
Chile's central bank policy makers voted unanimously to increase interest rates at their last meeting by half a percentage point for the third straight month. Central bank president Jose De Gregorio lifted borrowing costs to 7.75 percent to help stem the fastest inflation in 13 years. The bank published minutes from the Aug. 14 meeting on its Web site.

Colombia

Fitch Ratings affirmed Colombia's foreign currency sovereign Issuer Default Rating (IDR) at 'BB+' and the local currency IDR at 'BBB-'. The Rating Outlook remains Stable with the sovereign's country ceiling at 'BBB-', and affirmed the short-term IDR at 'B'. Fitch praised Colombia's macroeconomic stability, much-improved growth performance, as well as its disciplined fiscal policies and deft liability management. But the agency noted a less robust monetary and exchange rate policy framework as well as relatively high fiscal and external solvency ratios represent credit weaknesses. Fitch also warned Colombia remains vulnerable to external shocks due to limited trade integration, high commodity dependence, and considerable trade exposure to Venezuela.

Mexico

Mexico's falling oil output may curb economic growth, and a proposal in Congress to revamp the energy industry has been ``diluted,'' Moody's Investors Service analyst Mauro Leos said. Moody's has no plans to raise the rating on Mexico's debt, Leos said during a conference in Mexico City.
Inflationary pressures in Mexico are abating and consumer price increases will peak by next year, central bank Governor Guillermo Ortiz said. ``We're seeing the end of the inflation theme and pressures because of supply shocks,'' Ortiz said today at a conference in Monterrey.

Peru

Peru on Friday posted a current account deficit of $1.57 billion in the second quarter versus a $368 million surplus a year earlier, marking its second straight deficit after seven consecutive quarters of surpluses. The current account deficit was equal to 4.5 percent of gross domestic product and was hit by a surge in imports that narrowed the trade surplus in one of the world's fastest-growing economies, the central bank said. In the first quarter, Peru's current account deficit totalled $655 million. Peru posted a public sector fiscal surplus of 5.6 percent of GDP in the second quarter, down from 8.2 percent in the same period of 2007, the bank said. Peru's economy grew some 9 percent last year and is expected to expand at a similar rate this year.

AFRICA & MIDDLE EAST

South Africa

South Africa's planned investment in large projects surged to 336 billion rand ($43.5 billion) in the first half of the year as state electricity company Eskom Holdings Ltd. stepped up spending on power plants, Nedbank Group Ltd. said. The value of announced projects increased from 194 billion rand for the whole of last year, the Johannesburg-based lender, the country's fourth-largest bank, said in a report released.
The cost of goods leaving South African factories and mines rose at the fastest pace in 22 years last month, buoyed by surging fuel and electricity prices. Producer-price inflation accelerated to 18.9 percent from 16.8 percent in June, Pretoria-based Statistics South Africa said.

Zambia

Copper production in Zambia, Africa's leading producer of the metal, climbed 3.1 percent in June, the Bank of Zambia said, without providing reasons for the increase. Output climbed to 45,115 metric tons, from 43,766 tons a year earlier, the Lusaka-based bank said in a statement. Exports climbed to 50,824 tons, from 45,027 tons.

ASIA

China

China may have overwhelmed the United States -- not to mention the rest of the world -- in its quest for Olympic gold, but when it comes to trade China may be losing its edge. A spate of factors including a weak dollar, sluggish U.S. demand and high commodity prices have started to rebalance the trade accounts of both Beijing and Washington. Experts agree that is not necessarily a bad thing. The question is whether China can do the rebalancing without a hard landing. The exports that have helped to fuel 30 years of China's growth need to be balanced by more domestic consumption in the future. And policymakers who have focused on keeping growth at a breakneck pace now need to pay more attention to sectors that are more energy-efficient and pollute less. "China's trade surplus might come down significantly if the government is serious about rebalancing the economy, and it is something that we would like to see," Bin Zhang, an economist at the research centre for international finance at the Chinese Academy of Social Sciences, said in a report. "Whether that will happen depends on the authorities' political wisdom and will in fighting against certain interest groups," he added. Exporters have been lobbying for export rebates and slower yuan appreciation. Local governments and the Ministry of Commerce are on their side because they count on the export sector to create jobs.

Malaysia

Malaysia's Prime Minister Abdullah Ahmad Badawi, facing challenges to his leadership amid slowing growth and faster inflation, may cut taxes and put more cash in the hands of consumers to bolster support in his 2009 budget. Abdullah, 68, may propose income tax reductions, lower employee contributions to the national pension fund and cash handouts or rebates to the poor in his budget speech, according to economists surveyed by Bloomberg News.

Philippines

The Philippine central bank raised its benchmark rate to tame inflation, saying the economy is ``strong enough'' to withstand a third increase in borrowing costs since June. Bangko Sentral ng Pilipinas increased the rate it pays banks for overnight deposits by 0.25 percentage point to 6 percent, Governor Amando Tetangco told reporters in Manila.

South Korea

Bank of Korea played down on Wednesday the potential threat of a massive capital outflow from the country due to an unusually high amount of bonds maturing next month, but pledged to strengthen capital market monitoring. The central bank said foreigners, who hold $6.7 billion worth of won bonds due in September, were unlikely to take all the money out of the country and instead would probably reinvest much of it in the domestic bond market. "We don't expect (the maturing bonds) will play a destabilising factor in the currency and other financial markets," it said in a statement. The comments sought to dispel fears that the won , already hit by the current account deficit and foreign selling of local stocks, would plunge if foreigners flocked to convert proceeds from the maturing bonds into dollars next month. The central bank listed higher investment returns on South Korean bonds after recent rises in yields and easing liquidity crunch at global financial firms as some of the factors that should help keep foreign investors in the country. Analysts agreed, saying the chances of South Korea falling into a full-blown crisis were very low.

Thailand

Thailand's economic growth slowed more than expected in the second quarter, increasing the likelihood the central bank will soon stop raising interest rates. Southeast Asia's second-biggest economy expanded 5.3 percent in the three months ended June 30 from a year earlier after a revised 6.1 percent gain in the first quarter, the government said in Bangkok.
Two thousand Thai police took up positions around Bangkok's Government House on Wednesday, tightening the noose on protesters camping outside the prime minister's office to try to oust him from power. Following are five facts about the People's Alliance for Democracy (PAD), the motley group of royalist businessmen, academics and a retired major-general behind the movement.

• Founded in September 2005 by media proprietor Sondhi Limthongkul, a disgruntled former business associate of then Prime Minister Thaskin Shinawatra. Sondhi appeared in a Bangkok park to rail against Thaksin, accusing him of abusing his large parliamentary majority to further the business interests of his family and friends.

• The PAD swelled into a major anti-Thaksin street movement, especially when it hooked up with Major- General Chamlong Srimuang, an ascetic Buddhist who led a successful "people power" uprising against military rule in 1992. Its protests were key to the political turmoil that led ultimately to the 2006 coup against Thaksin. It has been targeting the current government since May 25, saying the government is an illegitimate Thaksin proxy.

• The PADs main draw card has been defence of the monarchy and 80-year-old King Bhumibol Adulyadej, regarded as semi-divine by many Thais, in the face of what they say is a bid by the Thaksin camp to turn Thailand into a republic. PAD protesters are routinely clad in yellow. In Thailand every day is marked by a different colour and yellow is the colour for Monday, the day on which the King was born. Thaksin and his supporters deny any challenge to the throne.

• There are major question marks over the PAD's motives and backers. Its contempt for the results of three elections comfortably won by Thaksin or his allies has led to suggestions it represents neither the people nor democracy. PAD says 70 percent of MPs should be appointed rather than elected. The alliance says it is funded by public donations. Analysts suspect it is also bankrolled by anti-Thaksin business interests, parts of the army or even factions within the palace.

• It has become something of a social phenomenon, stretching way beyond the rock-concert-like stage where they hold their daily rallies on a major Bangkok intersection. The PAD has a radio station, satellite TV channel, several sympathetic newspaper titles and a slick, popular website. It has also shown an uncanny ability to keep itself in the public eye and drive the domestic political agenda, jumping on issues such as a dispute with Cambodia over a 900-year-old Hindu temple to whip up anger against the government.

Vietnam

Vietnam trade deficit widened, but a slower pace in Aug. This may suggest that measures to cut import are succeeding, and ease concern of BOP crisis. Vietnam trade deficit up to Aug reached USD 16 bln, up 2.2x of the USD 7.3 for similar period last yr according to the General Statistics Office (GSO). Vietnam trade deficit in fact has been widening but at slower pace in May from slew of measures. For mth of Aug exports rose of USD 43.32 bln or 39% an unchanged pace of growth from revised Jan-Jul rate. Imports rose +54%, to USD 59.29 bln, dn from revised 58%.

EMERGING EUROPE & CIS

Baltic States

Fitch Ratings says in a special report that the Baltic states face a challenging and uncertain 12 months as they undergo a rapid macroeconomic adjustment in a difficult global economic and financial environment. All three countries have Negative Outlooks on their Long-term foreign currency Issuer Default ratings (IDR) of 'A' for Estonia, 'BBB+' for Latvia and 'A' for Lithuania. The agency expects the Outlooks and ratings to be driven by the nature and cost of the adjustment underway in the Baltic economies. "After years of strong, and ultimately unsustainable, growth fuelled by massive capital inflows and rapid credit growth, a necessary slowdown is underway in the Baltic economies. However, the downturn is sharp in Estonia and Latvia and they are at risk of recession, heightening downward pressure on creditworthiness," says Eral Yilmaz, Associate Director in Fitch's sovereigns group. Real year-on-year GDP growth has plummeted to a negative 1.4% in Q208 in Estonia from 4.8% in Q407 and to just 0.2% in Latvia from 8.1%. The slowdown in Estonia and Latvia has been led by a fall in investment, particularly into real estate, and private consumption, which has also slowed import growth. Credit growth has weakened and property prices have fallen around 20% in the past year. Lithuania's economic boom was more modest and, consequently, its imbalances are less marked. It is also experiencing a slowdown in real GDP growth, although it started later in Q307 and growth was 5.5% in Q208. Furthermore, inflation rates are high, wage growth is robust and external finances remain over-stretched. At 16.5% in July 2008, Latvia's year-onyear inflation rate was the highest in the EU while, Lithuania's (12.4%) and Estonia's (11.2%) were the third- and fourth-highest, respectively. Fitch forecasts Latvia's current account deficit at 18.2% of GDP in 2008, the secondlargest in the EU, Lithuania's at 14.5% and Estonia's at 12.7%.

Georgia

Georgia sold $187.2 million, or 12.8 percent of its foreign reserves last month, to prevent the lari from tumbling as the conflict with Russia spurred investors to withdraw funds from the country. The National Bank of Georgia sold the most dollars in August since it started compiling foreign-exchange data in January 1999, according to its Web site. Russia invaded the former Soviet republic on Aug. 8, leading to five days of fighting with its neighbor over the breakaway region of South Ossetia. The central bank's action, which included the sale of $12.9 million on the day of the incursion, helped limit the lari's loss against the dollar to 0.1 percent last month, said Vladimir Osakovsky, an analyst in Moscow at UniCredit SpA. ``The ruble tanked during all this, so imagine what would have happened to the lari,'' he said in an interview. ``The stable currency provided an anchor of financial stability amid the crisis.''

Hungary

Hungary's conservative opposition Fidesz continued to hold a commanding lead over the ruling Socialists, a survey by pollster Szonda-Ipsos published in daily Nepszabadsag on Monday showed. Among all voters, support for Fidesz remained at 32 percent while support for the Socialists, who rule in a minority government, rose to 19 percent from 18 percent. Support for the liberal Free Democrats, who quit government in April, was well below the 5 percent threshold needed to get into parliament.

Romania

Romania's faster-than-expected economic growth in the second quarter confirms central bank concerns about overheating and prospects for inflation, an advisor to central bank governor said on Monday. "Economic growth is very big. It shows inflationary pressures are very high," Lucian Croitoru, an advisor to central bank governor Mugur Isarescu, told Reuters. "This is just a confirmation of a concern, which the central bank has expressed repeatedly, that the economy is overheating and ... inflationary pressures are high ... A lot of it comes from the harvest, but ... there is also aggregate demand." Data showed on Monday that the Romanian economy expanded by 9.3 percent on the year in the second quarter, its fastest rate in almost four years.

Russia

Russian manufacturing contracted in August for the first time in almost four years as businesses won fewer new orders and companies cut jobs. VTB Bank Europe's Purchasing Managers' Index fell to 49.4 from 50.4 in July, the fifth consecutive monthly decline and the first contraction since November 2004, the bank said in an e-mailed statement. A figure above 50 indicates growth. The bank surveyed 300 purchasing executives. ``The major factor underpinning the weakening in activity has been a decrease in new orders, which fell for the first time in almost 10 years,'' said Dmitri Fedotkin, an economist at VTB Bank Europe Research, in the statement. Economic growth this year may miss the Economy Ministry's forecast of 7.8 percent as foreign investors pull money out and corporate borrowing costs rise as a result of international tension over Georgia, said Alexander Morozov, chief economist at HSBC Bank in Moscow, on Aug. 29.

Turkey

Tensions between Turkey's government and its powerful generals will continue clouding the future of the European Union-applicant country, after the new military commander warned against the rising profile of Islam. General Ilker Basbug laid bare in his first speech as commander of NATO's second-biggest army on Thursday the battle lines of a power struggle between the Islamist-rooted AK Party and the military, which sees itself as the ultimate guarantor of Turkey's founding secular principles. While his words repeated the military's long-standing policies, analysts said they also served as a reminder that despite setbacks the military was still a bulwark against what it views as attempts to bring religion into public life. Basbug, a hawkish and calculating general, takes command as Turkey hopes to put behind it a long standoff pitting secularists, including generals and judges, against the AKP. "There is nothing new in his words. The old battle lines are all there," said Cengiz Aktar, a professor at Istanbul's Bahcesehir University. "He will play the role of the wise man after the storm but at the end of the day he is just repeating the well-established policy of Turkey's armed forces," Aktar said. Analysts say Basbug, promoted to the top job after rising through the ranks, is less confrontational than his predecessor.

Ukraine

Prime Minister Vladimir Putin rejected suggestions that Russia may target pro-Western Ukraine after recognizing Georgia's breakaway regions. Russia has ``long recognized'' Ukraine's borders, Putin said yesterday in an interview with Germany's ARD television. He also said Russia will honor its oil- and gas-export contracts, and he repeated criticism of U.S. involvement in Georgia. The Crimea in southern Ukraine on the Black Sea, with its Russian-speaking population and a Russian naval base, ``is not a disputed territory,'' and didn't have an ethnic conflict, as South Ossetia had, the former Russian president said. His comments were posted on the Russian government's Web site. French Foreign Minister Bernard Kouchner said Aug. 28 he assumes that Ukraine and Moldova are the next ``Russian targets'' after the Kremlin recognized the independence of Georgian breakaway regions South Ossetia and Abkhazia. Ukraine, like Georgia, has allied with the West and is seeking to join the North Atlantic Treaty Organization. The U.S. has long seen Georgia and Ukraine as counterweights to Russia's influence in the region.

INDUSTRIAL COUNTRIES

Iceland

Icelandic inflation accelerated in August, pushing the annual rate to its highest level in 18 years, data from Statistics Iceland showed Wednesday. Iceland's consumer price index increased 0.9% on a monthly basis, making the yearly rise 14.5% - the highest level since the 15.5% rate in July 1990. In July, the index also rose 0.9% on the month and was 13.6% higher on the year.

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Published on  Mon, Sep 1 2008, 11:06 GMT

Argentina bought back more than $110 million in bonds this week

Mon, Aug 25 2008, 07:48 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina bought back more than $110 million in bonds this week, the Economy Ministry said on Friday, as part of a debt buyback program it launched to bolster flagging investor confidence. The purchases raised to around $380 million in short-term debt the country has repurchased since it announced the plan on Aug. 10. "The Treasury has reduced the debt payments it must make over the next four years estimated at around $520 million, meaning a savings of $140 million," the ministry said in a statement. On Thursday, the country said it will begin to hold auctions in connection with the program beginning next week with plans to continue them through the end of the year. The government bought back Boden 2012, Boden 2013, Bonar V and Boden 2008 bonds among others, the ministry said. Argentina started the buyback program last week to stem falling bond prices after the government sold $1 billion in 2015 bonds to Venezuela in a direct sale, with a yield of 14.8 percent. High inflation and falling prices for soy, Argentina's top foreign income earner, have raised concerns the government could face financing shortfalls next year.

Brazil

Brazil's government plans to invest part of the revenue from its new offshore oil discoveries outside the country to avoid fueling inflation and a currency rally at home, Finance Minister Guido Mantega said. ``A part (of the revenue) must go to a sovereign wealth fund to avoid flooding the Brazilian economy with dollars from oil exports,'' Mantega told reporters in Brasilia. The government of Brazilian President Luiz Inacio Lula da Silva is considering how to make the best use of the revenue from the so-called pre-salt oil deposits, which extend 800 kilometers along Brazil's coast.

Colombia

Colombia is moving towards lifting capital controls on foreign equity trading after the peso's 14 percent depreciation from a mid-June high, Citigroup Inc. wrote. The government is studying a regulation that would remove restrictions on stock investments in a bid to win an investment-grade debt rating, Portafolio newspaper reported, citing President Alvaro Uribe.

Peru

Peru's foreign-currency debt rating was raised to within one level of investment grade by Moody's Investors Service as the government pays down foreign debt. Moody's increased Peru's credit rating to Ba1 from Ba2, in line with Brazil, Colombia, Panama and Costa Rica. The outlook for the rating is stable, the New York-based company said in a statement. Earlier this year, Fitch Ratings and Standard & Poor's raised Peru to BBB-, the lowest level of investment grade.

Venezuela

Venezuela approved the ``forced acquisition'' of the shares and property of Cemex SAB's local unit, a day after the national guard, oil workers and Energy and Oil Minister Rafael Ramirez seized the facilities. Petroleos de Venezuela SA, the state oil company, will take over the cement unit under a decree signed by President Hugo Chavez and published in the official gazette, the formal record of government actions. The decree formalizes state ownership of Cemex Venezuela SACA as part of Chavez's move to boost state ownership of the country's most productive industries.

AFRICA & MIDDLE EAST

Egypt

Fitch Ratings has revised the Outlook on the Arab Republic of Egypt's Long-term foreign currency Issuer Default rating (IDR) to Stable from Positive, while affirming the rating at 'BB+'. The agency has also downgraded the Long-term local currency IDR to 'BBB-' (BBB minus) from 'BBB'. The Outlook remains Stable. The Short-term foreign currency IDR and Country Ceiling are affirmed at 'B' and 'BB+', respectively. "This year's surge in global food and fuel prices has increased the challenges facing Egypt's policymakers," says Richard Fox, Head of Middle East and Africa Sovereign Ratings at Fitch. "The power of Egypt's monetary tools to curb inflation is still quite weak, raising the prospect of double-digit inflation continuing well into next year. And no reduction in the very high budget deficit is planned this year, with the timing of critical fiscal measures - subsidy reductions and the introduction of VAT - sensitive to their impact on inflation."

Nigeria

Nigeria's annual inflation rate rose for the fourth consecutive month in July to 14 percent, the highest since Nov. 2005, as food prices rose. Inflation accelerated from 12 percent in June, Henry Eteama, spokesman for the Abujabased National Bureau of Statistics, said by phone.

South Africa

South African economic growth rebounded to an annualized 4.9 percent in the second quarter as a power shortage that shut mines in January eased. Gross domestic product climbed from 2.1 percent in the first three months of the year, Pretoria-based Statistics South Africa said in a report. Growth was higher than the 4.2 percent median forecast of 16 economists surveyed by Bloomberg. Mining and manufacturing output, which together account for about a fifth of the economy, increased as electricity supply stabilized, benefiting miners such as Anglo Platinum Holdings Ltd., the world's largest producer of the metal. Growth may slow again as six interest rate increases since June last year slash consumer spending on cars and furniture.

ASIA

India

India's central bank should raise interest rates to tame 16-year-high inflation, the finance ministry said, after the government handed out a 21 percent salary increase to civil servants ahead of elections. ``Monetary policy has to focus on inflation,'' the ministry's Chief Economic Advisor Arvind Virmani said in an interview in New Delhi yesterday. ``The political system doesn't tolerate inflation beyond a certain point.''

Indonesia

The Indonesian rupiah was set for its best week in more than a month on speculation overseas investors are buying the nation's assets as stocks gain and the government issues Islamic bonds. Ten-year bonds fell this week. The currency snapped a two-week decline on speculation the central bank is seeking a stronger currency to temper inflation. Foreign investors bought more Indonesian stocks than they sold in two of the past three trading days.

Malaysia

Malaysia's central bank denied on Thursday that its chief Zeti Akhtar Aziz was to resign amid pressure from markets to deliver an interest rate hike for the first time in more than two years. Malaysia, alone in Southeast Asia, has held rates in the face of rising inflation and that has prompted some analysts to question its independence from the government which wants to avoid hikes at a time of political turmoil and slowing growth. Its benchmark rate stands at 3.5 percent and has been there since April 2006. "It's definitely not true," a spokesman for Bank Negara Malaysia said in response to a question about market rumours Zeti was to quit. Lack of action from the central bank and the prospect of political instability as opposition leader Anwar Ibrahim challenges the 50-year rule of the governing coalition has hit Malaysian assets.

EMERGING EUROPE & CIS

Hungary

Hungary's central bank and finance ministry are likely to retain the country's 3 percent medium-term inflation target, daily Nepszabadsag reported on Monday. The two bodies have marked the end of August as a deadline for reviewing the target, used by the central bank to set interest rates. The current target was set three years ago. The paper, without naming its sources, said the finance ministry and the central bank are likely to define 3 percent or values close to it as price stability to be achieved in 2010.

Kazakhstan

Kazakhstan pushed back the deadline for a final agreement with the Eni SpA-led venture on the Kashagan oil project after the prime minister named a new chief executive officer for energy company KazMunaiGaz National Co. Prime Minister Karim Masimov appointed Kairgeldy Kabyldin to take over at KazMunaiGaz from Serik Burkitbayev, according to a statement posted on the government Web Site.

Romania

Romania will probably hold parliamentary elections on Nov. 30, Interior Minister Cristian David said on Friday, quoted by state news agency Agerpres. David told a news briefing in the northern city of Iasi that the government, which has to issue a decree setting the date, had no reason to delay polls beyond that date. Some opposition groups have accused Prime Minister Calin Tariceanu of trying to delay the polls until early next year to give his centrist minority government time to improve its ratings through new populist measures. The opposition Democrat Liberal Party (PD-L), linked to President Traian Basescu, is likely to win most votes in the election, according to latest opinion surveys. Support for the centre-right PD-L is put at 38 percent. In local elections in June, the PD-L and the leftist Social Democrat Party (PSD), also in opposition, each took about 30 percent of the vote, making them leading contenders in a national vote. The PSD is forecast to take 26 percent of votes in November. Tariceanu's Liberal Party looked set to take just 16 percent, meaning it would have to turn again to other parties to remain in power.

Russia

Russian lawmakers approved on Monday a resolution recognising the independence of two rebel regions of Georgia, a move likely to worsen relations with the West already strained by Moscow's military intervention there. The upper house of parliament, or Federation Council, voted 130-0 to call on President Dmitry Medvedev to recognise the rebel regions of South Ossetia and Abkhazia as independent. Georgia and Russia fought a brief war earlier this month over South Ossetia after Tbilisi sent in troops to try to retake the province by force, provoking a massive counter-attack by land, sea and air from Moscow. "Today it is clear that after Georgia's aggression against South Ossetia (that) Georgian-South-Ossetian and Georgian-Abkhazian relations cannot be returned to their former state," upper house speaker Sergei Mironov said during the debate. "The peoples of South Ossetia and Abkhazia have the right to get independence". The lower house, or State Duma, was due to approve a similar resolution later in the morning.

Ukraine

Ukraine will stick to its agreements with Russia on leasing the Sevastopol base to the Russian Navy until 2017, President Viktor Yushchenko said. Ukraine will hold to its obligation even though Russian naval ships took part in military action in Georgia, he said at a joint news conference in Kiev. ``I am not going to support any speculation concerning terms and conditions of the Russian Black Sea fleet remaining on Ukrainian territory,'' Yushchenko said.
A European Union think tank said on Monday the bloc should make specific commitments to Ukraine after Russia sent troops into Georgia. The European Council on Foreign Relations (ECFR) said the EU should respond to Russia's Aug. 8 military incursion with "stronger engagement for democracy, prosperity and security in the broader region" but keep "tough measures towards Moscow on the table if Russia resists". Relations with Ukraine, with which the EU holds a joint summit on Sept. 9, should be a key plank of such a strategy. Ukraine, like Georgia, is a former Soviet state with a large Russian minority population whose leaders have irked Moscow by seeking closer ties with the West, including membership of NATO. "The EU should ... make a special commitment to Ukraine," the think tank said in a policy brief. "It should recognise the right to EU membership in future, agree to a more liberal visa regime, offer a solidarity clause backing Ukraine's territorial integrity, and move to integrate Ukraine into the EU's energy market." Harsh actions against Russia would be counterproductive, the ECFR said. EU diplomats are considering the 27-nation bloc's response to Russia's assault on Georgia, which followed an attempt by Tbilisi to retake control of its separatist, pro-Russian province of South Ossetia. A ceasefire -- signed by Georgia and Russia on Aug. 15 and 16 respectively -- ended the brief war but Moscow has so far ignored Western demands it remove its remaining soldiers from Georgia's heartland.

INDUSTRIAL COUNTRIES

Iceland

Icelandic annual wage inflation rose to its highest in more than a year in July, climbing to 9.1 percent from 8.5 percent in June, data from the statistics office showed on Thursday. The country's wage index rose 0.7 percent during the month. Icelandic wage inflation has thus far not accelerated sharply despite a sharp rise in consumer prices this year. The year-on-year reading was last higher in June 2007, when wages showed a 9.8 percent annual increase. Following that, salary growth started to ease as high interest rates began to bite, eventually hitting a more than three-year low of 6.2 percent at the start of the year. But international investor anxiety about high-risk assets and a slowing economy led to a sudden collapse in the Icelandic crown early this year, pushing inflation to an 18-year high in a country that is highly dependent on imports. Many economists think overall consumer price inflation in the island nation will start to decline once the effects of the crown's falls start to fade out.

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Published on  Mon, Aug 25 2008, 07:48 GMT

Venezuelan industrial production fell 1.4 percent in May from a year earlier

Mon, Aug 18 2008, 08:22 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's foreign debt rating was cut by Standard & Poor's on concern slowing economic growth will crimp tax revenue while mounting investor mistrust in inflation data erodes confidence in the government. S&P lowered Argentina's rating to B, five levels below investment grade and in line with countries including Jamaica and Paraguay, from B+. Argentina faces ``increasing economic challenges,'' S&P analyst Sebastian Briozzo wrote in a statement. ``Inflation and fiscal and financial strain have increased while the likelihood of the government taking prompt corrective measures to staunch the loss of creditworthiness remains low.'' Argentine bonds tumbled last week after President Cristina Fernandez de Kirchner defended the government's inflation data at an Aug. 2 news conference.

Bolivia

Bolivian President Evo Morales and opposition regional governors agreed on Wednesday to meet to try to ease a bitter power struggle that has gripped the South American country all year. The announcement followed a weekend recall vote in which both Morales and his biggest rightist rivals were confirmed in their jobs, a result some political analysts said would only serve to deepen their standoff. Governors in four of Bolivia's nine regions want more autonomy and a greater share of the country's booming energy revenues. They are demanding that Morales scrap a plan to redistribute farmland among the poor. Opponents of Morales, a close ally of Venezuelan President Hugo Chavez, are also unhappy with a new draft constitution that Morales wants to implement against their will.

Brazil

Brazil's external accounts remain sound as higher inflows of foreign direct investments are financing the widening current account deficit, the central bank said. Latin America's biggest economy posted a current account deficit of $18.1 billion in the 12 months through June, the widest in six years, as companies send more profits abroad and increased imports. The gap was covered by a $30.4 billion inflow of foreign direct investment in the 12-month through June, according to central bank figures.

Costa Rica

Moody's Investors Service has revised the outlook on Costa Rica's key ratings to positive from stable in recognition of the significant improvement in the country's fiscal and debt positions and the likelihood of such improvement continuing in the medium term despite ongoing global turbulence. The outlook change affects Costa Rica's Ba1 foreign and local currency government bond ratings. The outlook on the Baa3 foreign currency country bond ceiling and on the Ba2 foreign currency bank deposit ceiling was also revised to positive from stable. "Costa Rica's remarkable fiscal performance over the past few years has been driven by significant expenditure restraint and an improvement in revenues, reflecting not only the business cycle but also a concerted effort to enhance collection," said Moody's Vice President -- Senior Analyst Alessandra Alecci. "As a result, the fiscal and debt positions have improved to such a degree that it would take a major crisis to reverse the virtuous debt dynamics seen in recent years." Costa Rica's fiscal and debt indicators have begun to converge towards the investment-grade level.

Mexico

Four police chiefs were assassinated in Mexico, bringing the number of police killed this year to 270, Milenio reported. Top police officials were slain in the state of Mexico, north of Mexico City; Chihuahua, near the U.S. border; Quintana Roo in the south of the country; and Michoacan, on the Pacific coast, the Mexico City-based daily reported, without saying where it got the information.

Peru

Peru had a $46 million trade surplus in June, the country's national statistics institute said in an e-mailed report. Exports rose 12.4 percent from a year earlier to $2.74 billion. Imports rose 84 percent to $2.69 billion, the agency said. The trade balance was less than the $410 million median estimate in a Bloomberg survey of six economists.

Trinidad & Tobago

Standard & Poor's Ratings Services said that it raised its foreign currency sovereign credit rating on the Republic of Trinidad and Tobago to 'A/A-1' from 'A-/A-2'. Standard & Poor's also said that it raised its transfer and convertibility risk assessment rating on the republic to 'AA' from 'AA-'. In addition, Standard & Poor's affirmed its 'A+/A-1' local currency sovereign credit rating on Trinidad and Tobago. The outlook is stable. "The upgrade reflects the continued strengthening of the republic's fiscal and external accounts," explained Standard & Poor's credit analyst Roberto Sifon Arevalo. "This came on the back of a booming energy economy that has grown an average of 9.3% annually since 2003 and we expect to grow about 7% in 2008."

Uruguay

Moody's Investors Service said on Thursday it placed Uruguay's foreign- and local-currency sovereign bond ratings on review for possible upgrade, citing strong economic growth and fiscal restraint. Moody's rates Uruguay's sovereign credit at "B1", four notches below investment grade and one notch below both Standard & Poor's and Fitch Ratings, which have the country at a "BB-" rating. "Uruguay's economic performance has been characterized by strong growth, with convergence towards lower, more sustainable rates anticipated following an extended period of above-trend expansion in recent years," sovereign credit analyst Mauro Leos said in a statement. Moody's highlighted that government debt ratios have reported significant reductions in previous years, and "also that the strengthening of Uruguay's fiscal indicators reflects strong government commitment to fiscal restraint."

Venezuela

Venezuelan industrial production fell 1.4 percent in May from a year earlier, the central bank said on its Web site.

AFRICA & MIDDLE EAST

South Africa

South Africa will exceed its budget to build and renovate stadiums for the 2010 soccer World Cup by more than 2 billion rand ($255 million), Deputy Finance Minister Jabu Moleketi said. ``Six billion rand has been spent'' so far on the stadiums, Moleketi told reporters in Pretoria. Cost overruns will be ``something to the north of 2 billion rand. That is a function of the increase in input costs.'' In the budget in February, the treasury said the national government would spend 9.6 billion rand on building five stadiums and upgrading five others to host the world's most-watched sporting event.

ASIA

China

Foreign direct investment in China rose 44.5 percent in the first seven months of 2008 from a year earlier, adding to the flood of cash that may stoke inflation in the world's fastest-growing major economy. Spending by overseas companies increased to $60.7 billion, the Ministry of Commerce said on its Web site. Cheap labor costs and a growing and more affluent consumer market have attracted overseas companies to build factories in China. Still, money from foreign direct investment may fuel a rebound in inflation that slowed for a third straight month because of smaller food-price gains.

Indonesia

Indonesia needs to raise interest rates further to cool inflation, even as slowing global growth poses risks to Southeast Asia's largest economy, the International Monetary Fund said. ``Further monetary-policy tightening will be needed to put inflation back on a firmly declining path,'' the Washington-based IMF said in a note published on its Web site yesterday. Authorities are encouraged to ``continue to strengthen the inflation-targeting framework.'' Bank Indonesia has joined Asian central banks from India to the Philippines in raising borrowing costs this year to slow price gains. Indonesia's inflation accelerated to a 22-month high of 11.9 percent in July after the government raised fuel prices in May. Indonesia's central bank has raised its policy rate four times in as many months to 9 percent.

Malaysia

Malaysia's economy may expand at the higher end of the official forecast range this year, even as it faces a ``more challenging'' time ahead, Trade and Industry Minister Muhyiddin Yassin said. Gross domestic product may grow at a ``modest'' pace of about 6 percent in 2008, Muhyiddin said in Singapore, citing ``robust'' manufacturing and exports. The central bank had forecast in March that the economy would expand 5 percent to 6 percent this year. ``While the Malaysian economy has performed well in the first quarter, Malaysia expects to experience more challenging times as a result of global economic volatilities,'' the minister said at a forum in Singapore.

EMERGING EUROPE & CIS

Bulgaria

Fitch Ratings has affirmed the Republic of Bulgaria's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and 'BBB+', respectively, both with Negative Outlooks. The agency has also affirmed the Short-term foreign currency IDR at 'F3' and the Country Ceiling at 'A-' (A minus). "The Negative Outlooks signal Fitch's concern that Bulgaria's booming economy, now running a current account deficit of around 22% of GDP, is on an unsustainable path and risks a hard landing, despite rigorously disciplined macroeconomic policies," said Andrew Colquhoun, Director in Fitch's Sovereigns Group. "Even if Bulgaria achieves a smoother adjustment, its gross and net external debt levels are starting to look stretched relative to its rating peers, and further deterioration could trigger a downgrade." A sharp slowdown in the economy would be negative for the ratings. Booming domestic demand is contributing to a rise in imports, taking the current account deficit (CAD) to 21.7% of GDP in 2007.

Georgia

Georgian President Mikheil Saakashvili urged the Kremlin to discuss ways to avoid "discord for future generations" as Russian troops prepared to pull out of the Black Sea state on Monday. Saakashvili's comments, in a televised address, contrasted sharply with recent descriptions of the Kremlin as "21st century barbarians", looters and thieves and his accusations of ethnic cleansing in the pro-Russian breakaway region of South Ossetia. Russia announced on Sunday it would begin pulling its troops out of Georgia at midday on Monday, under a sixpoint ceasefire deal brokered by France. The European Union and the United States, wary of a drift back into conflict if there are delays, are pressing Moscow to finish the pullout quickly. Kakha Lomaia, the secretary of Georgia's National Security Council, said he saw no sign of a Russian withdrawal.

Hungary

Hungary's Monetary Council voted 10 to one to keep rates on hold on July 21, and the central bank is ready to defend its inflation target if needed, the minutes said on Friday. Analysts said the minutes indicated that rates would stay on hold for several months despite rising market expectations for a rate cut. The decision to keep rates on hold at 8.5 percent was opposed by only one member, who voted for a 25 basis point rate cut, at a meeting at which Governor Andras Simor was not present. "The Council continues to believe that it is necessary to maintain tight monetary conditions and is ready to take the necessary steps if the inflation target comes under threat," the bank said. The bank said a firming of the forint and below-potential economic growth would help reduce inflation, while an increase in global energy prices was an upward risk.

Romania

Romanian cosmetics company Elmi Prodfarm used a modified communist-era washing machine to mix its herb extracts when it was launched in a university dorm a decade ago. Over the past three years, the rapidly growing company has bought high-tech turbo emulsifiers, melters, vessels and fillers from Italy for its plant near the centre of Bucharest. That sort of technological transformation, along with a cheaper leu currency, has helped Romanian exports to speed up this year despite the economic problems in key western European markets. Central bankers have been reluctant to call the improvement sustainable, but official forecasts indicate faster exports should help stabilise Romania's bloated current account deficit at around 14 percent of gross domestic product in 2008. This could be a welcome relief for the new European Union member's overheating economy, which is financing a spending boom as consumer race to improve living standards and companies modernise, economists say. "There is definitely a structural improvement in exports, driven mainly by manufacturers who have turned to more value added goods as a result of foreign investment and technology imports," said BCR bank analyst Melania Hancila.

Russia

Russian Emergency Situations Minister Sergei Shoigu may delay negotiations that include OAO Gazprom Neft's 400 million-euro ($630 million) offer to buy Serbia's national oil company because of the conflict with Georgia. Shoigu, who heads Russia's negotiating team, was expected to arrive this week to begin trade talks that would include the purchase of a 51 percent stake in Naftna Industrija Srbije by Gazprom's oil division.

Turkey

Turkish stocks strengthened more than 1 percent on Friday while the lira softened slightly following a dovish statement from the central bank which left key interest rates unchanged at Thursday's monthly meeting. The lira currency softened to 1.1835 per dollar from Thursday's close of 1.1810. Istanbul's main stock exchange index closed 1.16 percent higher at 42,194.42 points. "The consensus was that the central bank would hold rates. The market was right and the central bank's tone was very mild. It showed that inflation could hold if dynamics do not deteriorate," said Ayse Colak director of research at Tera Stock Brokers. Turkey's inflation-fighting central bank brought to an end a three-month raising cycle on Thursday, leaving its key interest rates unchanged. Turkish inflation is currently in double digits, due to higher food prices and energy prices. It said a cautious monetary policy was needed in the face of pricing behaviour risks and global uncertainties. The bank kept the benchmark borrowing rate at 16.75 percent and left the lending rate at 20.25 percent.

Ukraine

Ukrainian annual industrial output grew at a slower pace in July, raising concern the country's economy is faltering. Industrial production increased an annual 5.1 percent in July, compared with 5.2 percent in June and 8.3 percent in May, the Kiev-based Ukranian Statistics Office said in a statement on its Web site. The economy is expected to expand 6.8 percent this year from 7.3 percent in 2007, boosted by industrial output, investments, and domestic consumption, according to government estimates.
Credit ratings agency Fitch does not yet see rising tension with Russia as a major threat to Ukraine's creditworthiness, it said on Friday, but remains concerned about a series of stresses in the Ukrainian economy. The aftermath of conflict between Georgia and Russia has seen a deepening row between Ukraine and its larger neighbour over the use of a Ukrainian port by Russia's Black Sea Fleet, prompting investors to price its debt as riskier. "It's not one of our key worries for the rating at this stage," Fitch director of emerging Europe sovereigns Andrew Colquhoun. "We are more worried about the current account deficit, rising external debt levels and inflation." He said that a small clash in the Black Sea that went no further might not have too great an impact on Ukraine's current BB- rating with stable outlook. "But if you had escalation or even if a small clash simply prompted capital flight then that would have a negative effect. Conflict would certainly be negative but that is not something we see as very likely at this stage." Ukraine's hvrynia currency has been appreciating this year, but any sudden shift in sentiment that prompted currency weakening would threaten both inflation as well as the banking sector, with a lot of domestic private sector debt in dollars and therefore hard to repay in the event of a major currency move, he said.

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Published on  Mon, Aug 18 2008, 08:22 GMT

Hungary posted a smaller−than−expected trade surplus in June

Tue, Aug 12 2008, 07:05 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina expects financing to become ``more difficult'' next year, Finance Secretary Hernan Lorenzino said. Argentina won't reopen its debt swap to investors who didn't participate in a 2005 restructuring of $95 billion of defaulted bonds, Lorenzino told reporters in Buenos Aires.

Brazil

Brazilian inflation forecasts for 2008 fell for the first time in 19 weeks and those for next year were unchanged in a central bank survey of economists. The benchmark IPCA consumer price index will finish the year up 6.54 percent, less than the 6.58 percent forecast made a week earlier, according to the Aug. 1 survey of about 100 institutions published on the bank's Web site. The central bank targets inflation of 4.5 percent, plus or minus 2 percentage points.

Chile

Chile's economy to expand more than 4% this year as investment rises and the country's energy sector recovers, said Finance Minister Andres Velasco in Santiago. Inflation in the South American nation is largely imported and is being driven by food, fuel and energy costs, Velasco said. Government reports showed that economic activity had rebounded in June while monthly inflation slowed less than expected by economists.
Chile's central bank policy makers considered a 0.75 percentage point rate increase at their July meeting, before voting unanimously to raise interest rates by half a point, the bank said on its Web site. The bank raised the rate to 7.25 percent on July 10 from 6.75 percent after annual inflation reached a 13-year high of 9.5 percent. The vote for a half-point raise implied further rate increases, the central bank said.

Venezuela

Venezuelan President Hugo Chavez's opponents will meet with a regional trade bloc's human rights panel in a bid to press the government to reverse a rule that bans some of their candidates from running for office. Adriana Pena, president of the human rights commission of Mercosur, arrived in Caracas to hear the complaints of key opposition figures barred from participating in local and regional elections on Nov. 23 by a high court ruling. ``The fact that the commission has bothered to come analyze this case is significant,'' Ricardo Sucre, a political analyst in Caracas, said in a telephone interview.

AFRICA & MIDDLE EAST

Burkina Faso

Standard & Poor's Ratings Services said it had revised its outlook on Burkina Faso from positive to stable on increased fiscal and external vulnerabilities. At the same time, we affirmed the 'B' long-term and 'B' short-term foreign and local currency sovereign credit ratings on Burkina Faso. "The outlook revision reflects our expectation that the current economic environment, characterized by upward pressure on energy and food prices and an appreciating currency that is pegged to the euro, will further weaken Burkina Faso's already minimal external and fiscal flexibility," Standard & Poor's credit analyst Sarah N'Sonde said. "The general government deficit (excluding grants) is estimated at 12% of GDP in 2008 and at about 13% of GDP in 2007." The sovereign rating remains constrained by the country's very low level of development, with GDP per capita of below $600 among the lowest in the world. That said, one of Burkina Faso's ratings strengths is the country's long track record of strong donor support and domestic stability, which we expect to continue despite the difficult economic environment. The ratings are also supported by the country's moderate debt burden, with general government debt estimated at 25% of GDP in 2008, from 40% in 2004, following sizeable multilateral debt relief.

Kenya

Kenya's central bank left its benchmark interest rate unchanged, after raising it in June, as inflation slowed. The Central Bank Rate was kept at 9 percent, Governor Njuguna Ndung'u said in an e-mailed statement from Nairobi. The bank last raised the rate by a quarter percentage point June 5. While inflation pressure has eased, it ``continues to be a source of concern to the Monetary Policy Committee,'' the governor said.
Kenyan markets have been supported by S&P’s decision to raise the sovereign’s B Rating outlook to positive from stable, a move that has also raised prospects for a long awaited debut Eurobond issue. The horrific postelection violence at the beginning of the year obviously scuppered issuance prospects for a time. The turmoil prompted S&P to cut the sovereign"s rating to B from B+ and for Fitch to lower its B+ ratings outlook to negative. Since then a coalition government has been formed which has helped stabilize the country. "The grand coalition government"s tentative success in continuing the growth-enhancing reforms and relatively prudent macroeconomic policies of the previous government, which is expected to ease Kenya's economic recovery and improve medium-term growth potential," according to S&P"s credit analyst Farouk Soussa.

Lebanon

Standard & Poor's raised its long-term sovereign credit rating of Lebanon to "B-" from "CCC+" on the easing of tensions between political parties that in May could have driven Lebanon to civil war. The outlook remains stable. "The ratings on Lebanon were raised to reflect the easing of tensions between the March 14th coalition, which dominated the government, and the opposition that in May had taken Lebanon to the brink of civil conflict," Standard & Poor's credit analyst Ben Faulks said in a statement. "The Doha accord, which has delivered the election of a president and the formation of a national unity cabinet, augurs well for Lebanon's immediate political stability. "This reduces the risk that depositors will withdraw funds from the Lebanese banking sector, which in turn lessens the government's near-term financing risks as banks are by far the government's largest creditors."

Seychelles

Standard & Poor's cut its credit rating on the Republic of Seychelles after the country failed to service a note and warned that the tiny African nation may also default on its global bond. S&P downgraded Seychelles' foreign currency sovereign rating to "selective default" or "SD" from "CCC/C", citing the country's failure to pay the principal due on July 1 of a privately placed 54.75 million euros amortising note due 2011. The ratings agency also lowered its rating on Seychelles' $230 million global bond due 2011 to "CCC-" from "CCC". "Since the private placement note is already in default, there is high risk they will default on the global bond," David Beers, S&P head of global sovereign ratings group told Reuters.

South Africa

Several hundred South African ruling party members converged on the eastern town of Pietermaritzburg to show support for their leader Jacob Zuma as he seeks to get corruption charges against him declared invalid. In a pretrial hearing scheduled to last two days, High Court Judge Chris Nicholson will rule whether the case should go ahead next week as planned. Zuma, 66, ousted President Thabo Mbeki as leader of the ANC in December and is the party's candidate to become the nation's next ruler after elections next year.

ASIA

China

China approved new foreign-exchange control rules to reflect changes in regulatory practices since 1997, according to a statement from the country's State Council or cabinet published. The rules allow the government to take ``necessary safeguarding and control'' measures to cope with an imbalance in international payments or economic crisis. The new regulations didn't give details on the new measures.

Indonesia

Indonesia's central bank raised its benchmark interest rate for a fourth straight meeting to tame inflation running at the fastest pace in almost two years. Governor Boediono and his seven colleagues increased the policy rate by a quarter point to 9 percent, Bank Indonesia said in a statement in Jakarta.

Philippines

A widening gap between U.S. and Philippine benchmark interest rates will help the Asian nation attract portfolio investments, central bank Deputy Governor Diwa Guinigundo said. ``Risk aversion seems to be keeping foreign capital in so-called safe havens like the U.S. market,'' Guinigundo said in a mobile-phone text message. ``We expect good fundamentals plus this rate gap to start bringing in foreign capital.'' The Philippine Stock Exchange Index has slumped 26 percent this year and the peso has declined 5.8 percent as investors sold Asian assets on concern accelerating inflation in the region will weigh on economic growth.

South Korea

South Korea's central bank raised interest rates on Thursday to a 7-1/2-year high and appeared to keep the door open for more tightening, but analysts said the first rise in a year could also be this year's last. The central bank raised its benchmark interest rate by a quarter of a percentage point to 5.25 percent, the highest since February 2001, its eighth rate rise since late 2005 and the first since last August. Bank of Korea Governor Lee Seong-tae said the rate rise aimed at containing inflation expectations and that it was too early for the central bank to lower its guard on prices. "It is not yet time for monetary policy to focus only on slowing economic growth because the inflation risk remains in place," Lee told a news conference.

Thailand

In the spat between the Bank of Thailand and government over how best to tackle soaring inflation, the unlikely figure of King Bhumibol Adulyadej could yet emerge as a key defender of central bank independence. Last week, the government packed the central bank's new board with people noted for favouring growth over price stability, or, in the case of the national police chief and the top public prosecutor, whose economic credentials are doubtful at best. Under new central bank legislation, the board will appoint a new rate-setting Monetary Policy Committee (MPC), which investors believe will be far more reluctant to raise interest rates than the outgoing committee led by governor Tarisa Watanagase. The central bank raised its key rate by 25 basis points to 3.50 percent last month and Tarisa has primed markets for another move this month, saying higher rates were needed to curb inflation, which hit 9.2 percent in July. Rate rise bets, however, could be off if a new bank board and new MPC take over in time for the next meeting due on Aug. 27. But that is a big if. The chairman of the new board requires approval from the King -- and so far he has not granted it. There is no deadline for the approval and nobody knows why the 81-year-old monarch is taking his time after last week's cabinet decision.

EMERGING EUROPE & CIS

Bulgaria

Bulgaria's economy is expected to expand by 6.2-6.5 percent this year against a previous forecast of 6.2 percent because of bumper crops, Economy Minister Petar Dimitrov said on Friday. The Socialist-led government had expected the economy to expand at the same rate as in 2007, despite the global credit crunch and an expected slowdown in foreign investment. "I am optimistic and we have upped our end-year forecast because of a very good harvest," Dimitrov told reporters. The official said Bulgaria's gross domestic product was seen rising by 6.3 percent in the second quarter this year against 7 percent recorded in the first quarter.

Hungary

Hungary posted a smaller-than-expected trade surplus in June, adding to signs that economic slowdown in the euro zone is taking its toll on central European exports, a key growth driver, analysts said. The surplus amounted to 100.3 million euros in June, according to preliminary data published by the Central Statistics Office (KSH) on Friday, up from 27.5 million euros in May, but below analysts' 146 million euro forecast. Analysts said the figure still did not cause a big surprise after an unexpected 0.3 percent fall in industrial output in June. "The whole CEE (Central European) region is starting to print weaker growth and worse trade numbers given easing external demand and surging commodity prices," said Silja Sepping of Lehman Brothers in London. In the first half of the year, Hungary's exports were up 11.9 percent while import growth was only 10.0 percent year on year. In June alone, imports were up by 8.4 percent year-on-year and exports rose by only 7.6 percent.

Romania

Romanian inflation is expected to peak in July due to gas and power price hikes, and fall sharply afterwards helped by bumper crops, allowing the central bank to hold fire in September, a Reuters poll showed on Friday. The mid-range forecast showed annual inflation rising to 9.3 percent in July from 8.6 percent in June. Monthly inflation was seen at 0.9 percent in July, due mainly to a 12.5 percent increase in domestic gas tariffs and a 5.3 percent hike in electricity costs. Gas and power account for about 10 percent of the price basket in Romania, which joined the European Union in 2007 and is struggling to rein in stubborn price growth ahead of its planned 2014 euro adoption target.

Russia

Russia's trade surplus surged 58 percent to $110.121bn in the first half of 2008, the Federal Customs Service reported today. Russia's foreign trade stood at $359.613bn in January-June 2008, having increased 50.2 percent compared to H1 2007. Trade with non-CIS countries soared 50.8 percent to $305.433bn, and 47 percent to $54.18bn with the CIS. Exports reached $234.867bn, which is 52 percent greater than in the first six months of 2007. Exports to the CIS went up 54.8 percent to $36.013bn, while exports to non-CIS countries rose 51.5 percent to $198.853bn. Imports amounted to $124.746bn, or 46.9 percent more than in H1 2007.

Turkey

Turkey's inflation rate rose at the fastest pace in more than four years in July as energy and food costs jumped, putting more pressure on the central bank to raise interest rates for the fourth month in a row. The inflation rate rose to 12.1 percent from 10.6 percent in June, the statistics office in Ankara said in a statement on its Web site. Consumer prices were expected to increase 11.8 percent, according to a Bloomberg survey of 18 economists. In the month, prices rose 0.6 percent.

Ukraine

Moody's Investors Service has confirmed several key credit ratings of Ukraine, concluding a review for possible upgrade that began in March, and has maintained a positive outlook on these same ratings. The decision not to upgrade the ratings that were under review but rather to keep a positive outlook takes into account an upcoming period of political and economic uncertainty, set against the much-improved sustainability of the government's debt metrics and relatively consistent fiscal policy. Moody's said the positive outlook applies to the B1 foreignand local-currency government bond ratings, the country's Ba3 foreign-currency ceilings for bonds and the B2 country ceiling for foreign currency bank deposits. The A3 (stable outlook) local currency country ceiling and Baa1 (stable outlook) local currency bank deposit ceiling have been affirmed. Also affirmed are the Not Prime short-term ratings for country ceilings for foreign currency bonds and bank deposits. "Moody's expects there will be difficult days ahead for Ukraine given its heightened external financing needs in the context of global market volatility," said Moody's Vice President Jonathan Schiffer. "Still, a positive outlook was judged to be appropriate because Ukraine has accumulated a large foreign reserve cushion after many years of strong economic growth and earlier current account surpluses."

Georgia

Standard & Poor's lowered its long-term sovereign credit ratings on the Government of Georgia to B from B+ and placed the ratings on CreditWatch with negative implications, as the sovereign moves rapidly toward all-out war with Russia. The transfer and convertibility assessment was lowered to BB- from BB. “The violence between Georgian troops and armed separatists in the breakaway region of South Ossetia over the past seven days has escalated to the brink of war with Russia - upon whom the separatists depend for political and economic support," Standard & Poor's said. After the breakdown in a 24-hour ceasefire on Aug. 8, 2008, full-scale military action by the Georgian government and escalating hostilities in the separatist zone have been followed by a significant build-up of Russian military hardware in the area. The rhetoric and actions of the two governments indicate that they are both on a war footing, which will jeopardize the large foreign direct investment inflows that finance Georgia's large current account deficit, and which have been a key factor in Georgia's strong economic growth performance over recent years. Higher-than-anticipated defense spending will also put the Georgian government's goal of fiscal consolidation at significant risk. Official Georgian statements suggest that the military action will continue until South Ossetia is fully under Tbilisi's control, while the Russian president has promised to defend Russian citizens in South Ossetia. However, it is possible that the difference in military capabilities between the two sovereigns or the geopolitical dynamics of the region, which are likely to result in intense diplomatic efforts by the international community, will prevent extended hostilities. Nevertheless, the outcome for domestic and foreign policy of even a short-lived conflict remains uncertain.

INDUSTRIAL COUNTRIES

Iceland

Iceland posted a trade deficit of 18.2 billion Icelandic crowns ($229 million) in July, a reversal after it managed its first surplus June in more than five years, data showed on Wednesday. The country had exports of 34.4 billion crowns in July and imports of 52.6 billion, the statistics office said. In June, Iceland had a surplus of 2.3 billion crowns, its first positive trade balance since February 2003.

• Download Full Emerging Markets Weekly

Published on  Tue, Aug 12 2008, 07:05 GMT

Emerging Markets Weekly

Mon, Aug 4 2008, 10:47 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina
 Argentine President Cristina Fernandez de Kirchner, holding the country's first presidential news conference since at least 2003, defended the farm and inflation policies that have eroded most of her public support. Fernandez, 55, said her proposals are aimed at helping redistribute wealth to poorer people and regions of the country. She disputed criticisms that the country's inflation index is inaccurate and backed her failed effort to impose new export taxes on farm goods, a plan that prompted the biggest anti- government rallies since 2001.

 Brazil
 The 65 days that plunged Brazil into a bear market are reminding investors that Latin America's biggest economy is still an emerging nation. Banco Itau Holding Financeira SA's Roberto Egydio Setubal says Brazil has been transformed after inflation dropped to 6.1 percent from 6,800 percent in April 1990 and the nation got its first investment-grade rating. Templeton Asset Management Ltd.'s Mark Mobius isn't convinced as interest rates rise at the fastest pace in the developing world and foreign investors sell equities like never before. ``You cannot say the country has changed,'' said Mobius, 71, who oversees about $40 billion in emerging-market equities at Templeton in Singapore. ``The experience they've had in responsible government spending and balanced budgets is relatively short. Inflation was high. We all have to be very mindful that these things can happen again.'' The 66- stock Bovespa Index, which gets almost half its value from producers of energy and raw materials, tumbled 22 percent from a record in May as the central bank increased interest rates in June and July, the current account deficit widened to an all- time high, and economic growth slowed. The benchmark Selic target rate jumped to 13 percent in July from 11.25 percent in April.

 Colombia
 Colombian inflation should begin to slow this month as a surge in food prices levels off and higher interest rates cool the economy, Finance Minister Oscar Ivan Zuluaga said. Zuluaga, in an interview with Bloomberg Television in Bogota, said Colombia would miss its inflation target of 3.5-to- 4.5 percent in 2008 for the third straight year. He said core inflation, which excludes food and energy, is under control and the ``lowest in Latin America,'' creating conditions to quickly reverse the accelerating trend of the past three months.

 Mexico
 Mexico's central bank raised its inflation forecasts through 2010 because of higher-than-expected commodity costs, increasing speculation policy makers will be forced to raise the country's benchmark lending rate. Annual inflation will reach as high as 6 percent in the fourth quarter, up from a previous forecast of no more than 4.75 percent, the bank said in a statement. Inflation in the third quarter will be as high as 5.75 percent, the bank said.

 Venezuela
 Venezuelan President Hugo Chavez is set to tighten his government's grip on the economy by taking over his first bank, the local unit of Spain's Banco Santander SA. Plans to nationalize the country's third-largest bank, announced yesterday, will give the state access to Banco de Venezuela SA Grupo Universal's 285 offices and $9.46 billion in deposits. It follows nationalizations in the oil, steel, cement, electricity and telecommunications industries.

AFRICA & MIDDLE EAST

South Africa
 South Africa's government said it will set targets for reducing emissions of climate-altering gases and may impose a carbon tax to limit the country's contribution to global warming. Greenhouse-gas emissions ``must stop growing at the latest by 2020 to 2025, stabilize for up to 10 years, and then decline in absolute terms,'' Environmental Affairs and Tourism Minister Martinus van Schalkwyk told reporters in Cape Town.

 Zimbabwe
 Talks between President Robert Mugabe's ruling party and Zimbabwe's Movement for Democratic Change aimed at ending the southern African nation's politic crisis are deadlocked, an opposition spokesman said. ``We aren't going to discuss why they've deadlocked, that’s for the talks brokers to disclose or not,'' George Sibotshiw spokesman for MDC leader Morgan Tsvangirai, said in a telephone interview from Johannesburg. Mugabe and Tsvangirai met face to face last week for the first time in 10 years and agreed to hold talks in neighboring South Africa to end a dispute over elections earlier this year. Mugabe extended his 28-year rule of Zimbabwe in a June 27 presidential runoff ballot in which he was the sole candidate.

ASIA

China
 Standard & Poor's said it upgraded China's debt ratings because of the improved fiscal and external positions in the world's fastest-growing major economy. The long-term sovereign credit rating was raised to A+, the fifth highest on its scale, from A, and the outlook is stable, the agency said. The short-term rating was increased to A- 1+, the highest level, from A-1. ``The ratings upgrade is motivated by China's improving fiscal and external position,'' said Standard & Poor's credit analyst Kim Eng Tan in a statement. ``These improvements to the government balance sheet will offer greater resilience to deal with the shocks of a potential sharp economic downturn.'' China's economy, the world's fourth largest, expanded 10.1 percent in the second quarter from a year earlier. That was the fourth straight quarter of slowdown as exports cooled. Its foreign-exchange reserves soared to $1.81 trillion as of June 30.

 India
 India's budget deficit may come under ``pressure'' this year, the central bank said, as the government boosts spending ahead of elections due by May. Government finances will be hit by ``higher oil subsidies and the burden of a debt waiver to farmers,'' the Reserve Bank of India said in a report on the economy issued in Mumbai before its quarterly monetary policy announcement tomorrow at noon. Salary increases for civil servants may also widen the shortfall, it said. A ballooning budget deficit may force India's central bank to raise borrowing costs to prevent higher government spending from stoking prices.

 India's central bank increased its benchmark interest rate by a half point, more than economists predicted, and forecast slowing economic growth as inflation at a 13-year high erodes spending by consumers and companies. The Reserve Bank of India raised its repurchase rate to 9 percent from 8.5 percent, the third increase in two months, according to a statement in Mumbai. Only one of the 22 economists in a Bloomberg News survey expected the decision, with 16 predicting a quarter-percentage point gain.

 Indonesia
 Indonesia sold 7.3 trillion rupiah ($800 million) of bonds to finance the budget deficit, the finance ministry said in a statement. The government auctioned 2.25 trillion rupiah of 9.5 percent bonds due June 2015 at a yield of 11.62874 percent and 2 trillion rupiah of 12.8 percent bonds maturing in June 2021 at a yield of 12.239 percent, the ministry said.

 Malaysia
 Malaysian opposition figure Anwar Ibrahim produced a report by a private doctor on Tuesday that he said showed his accuser had not been sodomised, as he battles a criminal case in his drive to unseat the government. The former deputy premier turned de facto opposition leader is facing criminal investigations that he had homosexual sex with a former aide last month, in what he says is a trumped-up allegation aimed at scuttling the opposition's rise to power. A copy of a report, said to be by the doctor who examined the alleged victim the same day he filed a police report against Anwar, was earlier published by a prominent blogger. Anwar said the medical findings showed "the allegations levelled against me are baseless and politically motivated, and that the complainant is an outright liar working hand in glove with those in power to assassinate my character". "This report makes a mockery of the so-called impartial police investigation, and clearly shows the dubious and persistent attempts to incriminate me by whatever means employable," Anwar told reporters.

 Philippines
 Philippine President Gloria Arroyo pledged to hold on to a tax on oil, defying pressure to eliminate or reduce it and help ease inflation, saying the revenue is needed to fund food programs. The government's move in 2005 to extend the value-added tax to include oil helped the economy prepare for a crisis brought about by surging commodity prices this year, Arroyo, 61, said in her annual state-of-the-nation address in Manila. ``We've come too far and made too many sacrifices to turn back on reforms,'' she said. The value-added tax on goods like oil products have helped the government ``build a shield around our country,'' and this has ``slowed down and somewhat softened the worst effects of a global crisis.'' Arroyo, who lifted the Southeast Asian nation's growth to a three-decade high of 7.2 percent last year from 1.8 percent at the start of her term in 2001, has seen her legacy threatened by record commodity prices and a weakening global economy this year.

Thailand

 Thaksin Shinawatra's wife and her brother were sentenced to three years in prison for tax evasion, the first convictions in a string of cases filed against the former Thai prime minister and his family. Pojamarn Shinawatra, 50, and her brother Bhanapot Damapong were also found guilty of providing false testimony and documentation on a 1997 share transfer, the Bangkok Criminal Court said. They will appeal within a month, family spokesman Pongthep Thepkanjana said after the verdict was read. The convictions raise the stakes in a battle between Thaksin supporters and opponents that has hobbled the current government. Prime Minister Samak Sundaravej, accused by street protesters of working on Thaksin's behalf, is planning a cabinet reshuffle that may distance him from the billionaire, who was ousted in a 2006 coup.

EMERGING EUROPE & CIS

Azerbaijan
 Moody's Investors Service has changed its outlook to positive from stable on Azerbaijan's Ba1 issuer ratings for foreign- and local-currency government debt, taking into account the low government debt and the country's excellent medium- to long-term fiscal and external prospects. Large projected surpluses on the consolidated budget position and the balance of payments will reflect windfall profits from the rapid expansion of oil and gas production and exports in the context of high prices.

 Hungary
 Hungary's central bank Gov Simor stated that a slower rate of increases in inflation would improve firms’ profit margins but firms would have to contend with a stronger forint that is likely to be a consequence of the lower inflation. Simor suggested that in order to maintain margins, firms could offer lower wage increases. The other positive effect of this would be fewer layoffs. Simor also noted that by stabilising inflation the govt could seek to adopt the euro. At this stage the govt has not set an official target date for adoption.

 Romania

 Romania's central bank, BNR, on Monday raised its annual inflation forecast for 2008 to 6.6% from an earlier 6.0%, above the upper limit of its target band for the year, and also raised its annual inflation forecast for 2009 to 4.2% from a previous 3.5%. "For 2008, we have revised our prognosis from 6.0% to 6.6% [...], for 2009 - from 3.5% to 4.2%, still within the target band, " Romania's central bank governor Mugur Isarescu told a news conference, presenting the BNR's quarterly inflation report. However, the BNR kept its inflation targets unchanged at 3.8% for this year and at 3.5% for 2009, with a variation band of one percentage point on either side, Isarescu said

 Russia
 Russia's trade surplus stood at $104.8bn in January-June 2008, having risen 1.75 times compared to the same period of 2007, the Economy Ministry said in a monitoring report on the current economic situation in Russia. Under the balance of payments methodology, Russia's exports grew 1.5 times to 240bn, according to the Bank of Russia's estimates.

 Slovakia
 Slovakia's economic outlook with Moody's has been revised to positive from stable and an upgrade to AAA on ceilings has been awarded owing to stronger economic fundamentals. Moody's has pointed out Slovakia's achievement in ensuring strong growth and improving public debt dynamics. Also, Moody's noted that Slovakia remains competitive owing to its low wages and highly skilled labour. Moody's expects that euro adoption will be beneficial for Slovakia in particular that the economy will be less vulnerable to external financial shocks thus a balance of payments crisis is less of a threat.

 Turkey
 The Central Bank of Turkey released the third Inflation Report for the year where end-2008 and end-2009 CPI inflation forecasts had been revised up to 10.6% and 7.6%, respectively. The 1.3pp upward revision of CPI forecast for 2008 (as compared to the Inflation Report of April 2008) stemmed from a 1.8pp additional burden on energy prices, 0.3pp, as opposed to a 0.8pp decline due to the appreciation of the currency. The CBT essentially revised up its oil price assumption to 140 $/bbl for 2008 and raised its food price inflation to 14% (from 13% previously). The Bank maintained its view that the economy was slowing and that the output gap would be resident throughout the period covering 2008-2011Q2. The CBT acknowledges the fact that following a monetary policy tightening of 150bps during the latest cycle, inflation expectations had finally started to respond well.

 After beating his army-backed secular opponents in court, Turkish Prime Minister Recep Tayyip Erdogan now may have to learn to live with them. Erdogan's party escaped a political ban when the country's high court rejected charges that he sought to introduce Islamic law in violation of a constitutional mandate for a secular government. The win gives Erdogan a chance to pursue democratic reforms and European Union membership. To succeed, he may need to abandon policies favored by his Islamist power-base, such as ending curbs on Muslim-style headscarves. ``Now Erdogan has to decide if he's going to behave,'' said Bulent Aliriza, head of the Turkey program at the Center for Strategic and International Studies in Washington. ``There will be pressure from hardliners in his party to be firmer on the Islamist agenda.''

 Turkey will start talks on a new agreement with the International Monetary Fund after Aug. 8, Aksam said, citing unidentified officials. The Fund's board of directors must first approve a report on the last seven years of lending agreements to Turkey, the newspaper reported.

 Standard & Poor's on Thursday revised its outlook on Turkey to stable from negative on the diminished near-term political uncertainty after the country's top court's decision not to ban the ruling AK Party for Islamist activities. S&P affirmed the country's credit rating at "BB-". "The resulting improved prospects for policy continuity and political stability will likely bolster investor confidence, widening the sources for the financing of Turkey's large current account deficit," S&P said in a statement. Wednesday's verdict eased months of political uncertainty, which has battered Turkey's financial markets on fears that the democratically elected party would be closed down, halting economic and political reforms needed for Turkey to join the European Union. Turkey's current account registered a deficit of 5.7 percent of GDP and 25 percent of current account receipts in 2007. Although net inward foreign direct investment offset 53 percent of the deficit, with portfolio equity making up for another 9.0 percent, external borrowing remained substantial.

Ukraine

 Ukrainian President Viktor Yushchenko urged the government to ensure the start of Caspian oil shipments to the European Union by year-end, after accusing the cabinet of missing a July deadline. The planned transit of crude through the Odessa-Brody pipeline is a ``unique European project,'' Yushchenko said in a statement on his Web site. ``We may lose it if we continue debates over it.'' On July 17, presidential official Bohdan Sokolovskyi accused Prime Minister Yulia Timoshenko of blocking accords to start pumping oil from Azerbaijan through the pipeline. Timoshenko has called the project ``corrupted,'' without giving details.

INDUSTRIAL COUNTRIES

Iceland

Iceland's shaky economy posted its first trade surplus in more than five years in June, revised data from the country's statistics office showed on Thursday. Iceland had a surplus of 2.3 billion Icelandic crowns ($28 million) versus a preliminary June reading showing a deficit of 880 million crowns. The swing was almost entirely due to an upward revision in exports. The surplus was the first positive trade balance since February 2003, when it was around 850 million, data from the office's Web site showed. The office said exports totalled 41.4 billion crowns, compared with a preliminary total of 38.3 billion. Imports were 39.1 billion versus a preliminary 39.2 billion. The surplus compared with a year-earlier deficit of 13.4 billion crowns.

• Download Full Emerging Markets Weekly

Published on  Mon, Aug 4 2008, 10:47 GMT

The government has to work to regain confidence in the national Statistics Agency

Mon, Jul 28 2008, 08:46 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's cabinet chief, Sergio Massa, said the government has to work to regain confidence in the national Statistics Agency, which releases inflation data, newspaper Clarin reported. Massa, who took office July 24 after his predecessor, Alberto Fernandez, resigned, is the first government official to note a lack of public confidence in the statistics agency, the newspaper said.

Brazil

Brazil's central bank signaled it's ready to pick up the pace of interest rate increases after raising lending costs more than economists forecast for a second time in three meetings. Policy makers led by President Henrique Meirelles raised the overnight rate by three quarters of a percentage point to 13 percent last night to bring inflation back to target in a ``timely fashion.'' Thirty-one of 45 economists surveyed by Bloomberg News predicted a half-point increase as in the two previous meetings. The increase aims to slow domestic spending as food and energy costs rise. Mereilles will miss his inflation goal for the first time since 2003, according to a survey of about 100 economists by the central bank. For 2009, inflation forecasts are on the rise and consumer prices are expected to increase 5 percent, above the goal of 4.5 percent.
Brazilian President Luiz Inacio Lula da Silva said the government has no room left for further spending cuts in its attempt to help control inflation, Estado de S. Paulo reported. The government has made all the adjustments it can in its budget and isn't able to cut spending any more, Lula told reporters during a trip to Portugal, the newspaper said.

Chile

Chile's gross domestic product will probably expand 4.25 percent this year, below its potential because of energy shortages, the International Monetary Fund said. ``Chile has obviously faced a very difficult environment over the last year,'' Martin Muhleisen, the IMF's mission chief, said in a conference call with journalists.

Colombia

Colombia will cut 1.5 trillion pesos ($831 million) in planned spending from its 2008 budget in a bid to reduce the deficit, Deputy Finance Minister Juan Pablo Zarate said. The government now targets a budget deficit equal to 1 percent of gross domestic product, down from 1.4 percent, Zarate told reporters in Bogota. The central government budget deficit will narrow to 3.1 percent, down from 3.3 percent, he said.
Colombia's central bank raised the benchmark interest rate for the second time this year in a bid to combat accelerating inflation. Policy makers increased their overnight interbank rate by a quarter-percentage point to a near seven-year high of 10 percent, matching the forecast of 19 of 41 economists surveyed by Bloomberg.

Ecuador

Ecuador's Central Bank President Robert Andrade stepped down after less than six months in office in the latest sign that the institution will lose its independence under President Rafael Correa. The Constitutional Assembly, within which Correa has a majority, announced the resignation in a statement without saying why Andrade, a 31- year-old economist and former assistant to Correa, decided to quit. ``It's a change that will help make the bank absolutely subordinate to the administration,'' said Jaime Carrera, head of the Quito-based Fiscal Policy Observatory, a research institute.

Uruguay

Standard & Poor's on Tuesday raised its foreign- and local-currency long-term credit ratings on Uruguay to "BB- " from "B+", citing diminishing economic vulnerabilities while the country remains solidly committed to sound macroeconomic policies. "Over the last four years, Uruguay has achieved high economic growth levels with only moderate inflation within a context of balanced fiscal accounts and only minor current account deficits, significantly reducing both fiscal and external debt levels," S&P said in a statement. "We expect that net general government debt will decline to 45 percent of GDP (gross domestic product) by the end of 2008 compared with about 89 percent after the crisis in 2003," the agency said. Net public-sector external debt will likely reach 60 percent of current account receipts by the end of 2008 compared with 200 percent in 2003.

Venezuela

Venezuelan President Hugo Chavez reaffirmed ties with Russia forged on shared rivalry with the U.S. as he shopped for air defense systems, submarines and other weaponry and signed energy deals. ``I am sure your election will become a guarantee of the stability of our plans,'' Chavez told Russian President Dmitry Medvedev at a meeting outside Moscow in comments broadcast on state television.

AFRICA & MIDDLE EAST

Ghana

Ghana, the world's second-biggest cocoa producer, slashed its forecast for the amount of beans it will receive from the so-called light crop because of smuggling to neighboring Ivory Coast. The Ghana Cocoa Board expects to receive at most 40,000 metric tons of the beans during the season, down from an estimate of 50,000 tons last month, Charles Ntim, the Accra-based board's deputy chief executive officer for operations, said in an interview. ``It looks as if our best bet may be around 40,000 tons or even less,'' he said. Lighter controls and poorer quality beans in neighboring Ivory Coast, a bigger cocoa producer, allow smuggled Ghanaian beans to fetch higher prices in that country, he said.

Nigeria

Nigeria, Africa's most populous country, plans to launch a national development plan in October that will aim to transform the nation into a manufacturer of finished goods, Planning Minister Sanusi Daggash said. The move will ensure its ``resources are no longer traded in their primary state,'' Daggash said at the annual meeting of the national association of manufacturers in the commercial city of Lagos. Nigeria, Africa's second-biggest producer of crude oil after Angola, is also one of the world's biggest exporters of cocoa, and is rich in several other commodities.

South Africa

A strike in four of South Africa's provinces to protest increased power prices shut car manufacturing plants and hindered people from getting to work in the several cities. The strike, called by the Congress of South African Trade Unions, also drew support from some workers at mines owned by Anglo Platinum Ltd., Impala Platinum Holdings Ltd., Harmony Gold Mining Co. and Gold Fields Ltd. Cosatu, South Africa's biggest labor federation, called the strike after the country's energy regulator last month allowed state-owned Eskom Holdings Ltd. To raise electricity prices by 27.5 percent, almost triple the 10.9 percent inflation rate, to help fund a $44 billion expansion.

ASIA

Asian governments from India to Malaysia, clinging to budget-busting fuel subsidies, may end up paying an even higher price: saddling their economies with an extended period of stagflation. ``Subsidies will come increasingly in the way of future growth,'' says Kalpana Kochhar, a senior adviser for the International Monetary Fund's Asia- Pacific Department in Washington. ``Not passing prices through and keeping artificial price and wage controls never works.'' Governments are being forced to choose between two unattractive alternatives: run up bigger deficits by continuing to shield citizens from soaring energy prices, or start to withdraw subsidies, fueling inflation and political backlash. Inflation has already reached decade highs throughout the continent and played a role in destabilizing politics. The result will be a combination of slower annual growth, amounting to 7.6 percent in 2008, and accelerating inflation of about 6.3 percent in East Asia, which excludes Japan and the Indian subcontinent, according to a July 22 report from the Asian Development Bank. The region averaged 8.4 percent gross domestic product growth and 3.2 percent inflation in 2004-2007, according to ADB figures. The consequences for Asia ``may prove more socially and politically noxious'' than the currency crisis of the late 1990s, says Uwe Parpart, chief Asia economist and strategist for Cantor Fitzgerald Hong Kong Capital Markets. Unlike the region's rapid recovery in 1997-98, ``there is no V-shaped exit from inflation, only a long and painful one,'' he says.

China

China's yuan declined for the first time in three days after the Politburo said maintaining economic growth and curbing inflation are priorities, fueling speculation the government will slow gains to aid exporters. The Politburo, the Communist Party's top decision-making body, wants to maintain ``steady and relatively fast'' economic growth, state-run China Central Television reported on July 25. The yuan's 7 percent advance this year is eroding the value of overseas sales as manufacturers contend with the slowest domestic economic growth since 2005.

India

India's government, victorious in a confidence vote this week, will push to lift restrictions on overseas investors' control of privately run banks, Finance Minister Palaniappan Chidambaram said. Stalled legislation removing a 10 percent cap on foreigners' voting rights in banks may be revived before laws on pensions and insurance, Chidambaram said. Prime Minister Manmohan Singh remained in power Tuesday with support from new allies who replaced communists opposed to foreign investment. ``We seem to have acquired the political space to take the liberalization process forward,'' Chidambaram said in a telephone interview from New Delhi. ``We are looking into various aspects of the foreign direct investment regime, trying to see whether further liberalization is possible.''

Indonesia

Indonesia's offer to swap short-term debt for a 14-year paper on Tuesday is likely to get a good response from the market as inflation in Southeast Asia's top economy may have peaked, analysts said. The finance ministry plans to swap government bonds maturing in 2009-2013 -- excluding treasury bills -- with fixed rate bonds maturing in 2022, as part of efforts to ease the country's refinancing risks. The 14-year bonds have a coupon of 12.9 percent and will be offered at 99.95 percent of par value. "I think the outlook for inflation is improving, so investors will likely go for long-term paper," debt analyst Handy Yunianto of Mandiri Sekuritas said. "With the debt switching, I think investors will opt for long-term debt with an attractive yield." Indonesia's annual inflation in June accelerated to 11.03 percent, its highest in nearly two years as the full impact of a fuel price hike took effect, prompting the central bank to raise its key interest rate, BI rate, to 8.75 percent on July 3. But the central bank governor, Boediono, said on July 9 that inflation may have peaked and might come down in July, based on the central bank's preliminary readings.
Bank Indonesia will use all its ``arsenal,'' including the rupiah, to slow inflation and reduce the need for the central bank to increase rates aggressively, Deputy Governor Hartadi Sarwono said. Indonesia's central bank has raised borrowing costs by a quarter-point in each of the past three months since resuming rate increases in May. Bank Indonesia, which is on a ``tightening mode,'' raised the rate to 8.75 percent on July 3.

EMERGING EUROPE & CIS

Hungary

Hungary will continue to issue more short-maturity discount treasury bills and fewer longer-maturity government bonds in the second half as the negative impact of the global subprime crisis persists into the second half of the year, executives of Hungarian debt center AKK said Thursday. "The restrained bond issues need to be continued in the second half so the role of T-bills and foreign currency issues will play a bigger role in the year as a whole," Laszlo Andras Borbely, AKK deputy chief executive, said at a press conference.

Romania

Romania's centrist government signed a deal with trade unions on Friday to raise the minimum monthly wage by 8 percent to 540 lei ($237) from October and to 600 lei from Jan. 1, 2009. The plan has been discussed with employers' associations and labour unions, which have put pressure on the minority cabinet to keep its pledge to raise wages. "This is what the Romanian economy can now bear, but in a reasonable way and without putting additional pressure on inflation," Prime Minister Calin Tariceanu said after the signing. Market watchers have warned that the centrists face pressure to loosen the purse strings before parliamentary elections later this year. The cabinet had planned to raise the lowest salaries from July if economic conditions were appropriate. But government officials said earlier this month that inflation was too high to allow a boost to people's spending power. Finance Minister Varujan Vosganian argued later that the inflationary impact will be offset by weaker food prices because of expectations of a good farming year.

Serbia

The arrest of Bosnian Serb war crimes suspect Radovan Karadzic showed Belgrade's willingness to recognise its international obligations, and more arrests could follow, the Serbian prime minister said on Sunday. Karadzic, twice indicted by the U.N. court in The Hague for orchestrating genocide during the 1992-95 Bosnia war, was arrested on Monday after more than a decade on the run. Serbia's bid to join the European Union had been held up by its failure to comply with demands by the Hague court to hand over Karadzic and other war crimes suspects. "The arrest of Karadzic was in a way the proof that there is a willingness to cooperate with the (U.N.) tribunal and we believe that cooperation with the tribunal will be essential for our country," Serbian Prime Minister Mirko Cvetkovic told reporters ahead of an annual meeting of the region's prime ministers.

Turkey

Turkish Prime Minister Recep Tayyip Erdogan, anticipating a court decision forcing him to quit, has begun preparing for early elections that likely would return him to power. His ruling Justice and Development Party has done internal polling that shows it probably would match the 47 percent it won in 2007, said Reha Denemec, its deputy chief. Erdogan is arguing in speeches that voters, not judges, should decide his fate. A repeat victory by Erdogan, 54, and his Islamist-leaning supporters would signal a shift in power away from Turkey's army-backed secularists as the country pushes to join the European Union. It also would probably boost confidence in Turkey's $659 billion economy, cutting borrowing costs and increasing foreign investment.
The militant Kurdistan Workers' Party, or PKK, denied responsibility for two bomb attacks in Istanbul that killed at least 14 people and injured more than 140, Milliyet reported. The group said it didn't plant the bombs that exploded in the city's Gungoren district, the newspaper said, citing a ``high-level'' PKK official who spoke on usual condition of anonymity.

Ukraine

Germany's backing of Ukraine's bid to sign a trade pact with the European Union doesn't mean it is ready to endorse the former Soviet republic's efforts to join the bloc, German Chancellor Angela Merkel said. Ukraine is expected to sign the Stabilization and Association Agreement, a first step before membership talks would begin, in September in France. ``It shouldn't be mixed up with concrete perspectives for joining the EU,'' said Merkel at a press conference in Kiev after meeting with Ukrainian President Viktor Yushchenko and Prime Minister Yulia Timoshenko.
Ukraine's current account deficit for the first five months of 2008 rose to $6.2 billion from $3.6 billion in the first quarter and was more than 3 times higher than in the first five months of 2007, the central bank said on Friday. The bank, quoting preliminary figures, said exports over the first five months of the year rose by 35.7 percent, while imports climbed 50.3 percent. "Stimulation of domestic demand in the absence of vital structural reforms, plus inflationary pressure, has led to faster rates of growth in imports and a worsening of the foreign trade balance," the bank said on its Web site www.bank.gov.ua. It said a continued gap in the rate between exports and imports had created a "negative foreign trade balance which is 2.6 times higher than last year's figure. "This led to an increase in the negative balance of the current account balance of payments to $6.2 billion, 3.4 times greater than the same period last year." The central bank said the inflow of investment funds over five months totalled $7.4 billion -- not only offsetting the current account deficit but allowing for an increase in reserve assets.

INDUSTRIAL COUNTRIES

Iceland

Iceland's consumer price index rose 0.94 percent in July from June to put annual inflation at 13.6 percent, a high unseen since August 1990, the statistics office said on Friday. Economists said they expected price pressures to pick up further in the next couple of months as the effects of a weaker crown currency and costlier imports work through the system. "This definitely adds to the worries of a (negative) spiral because of the wage negotiations early next year," economist Kristrun Gunnarsdottir at Landsbanki said. "This could mean that the (crown) effects are coming more clearly sooner than we thought, but if we look at the next two measurements after the sales finish, I think we could see very high numbers then." Still, several economists said that although inflation is well above the 4 percent ceiling of the central bank's comfort zone, fears of an economic slump will likely prompt policymakers to start lowering rates from record highs in November. At its last meeting on July 3, Iceland's central bank held rates at 15.5 percent and said it could start easing credit costs in the second quarter of 2009, once inflation eases. Policymakers have raised official rates sharply over the span of four years to curb rapid growth and rising prices, stimulated by huge foreign investment in aluminium smelters. The boom years show every sign of coming to an end.

• Download Full Emerging Markets Weekly

Published on  Mon, Jul 28 2008, 08:46 GMT

China's economy grew at the slowest pace since 2005 in the second quarter

Mon, Jul 21 2008, 10:39 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's President Cristina Fernandez de Kirchner revoked a decree that increased some agriculture export taxes after she failed to win support for the levy from the country's Congress. The country will resume the level of taxes on farm exports that existed before the measure took place in March, Cabinet Chief Alberto Fernandez said in a press conference in Buenos Aires. Since the president signed the decree, her public support slumped as farmers set up roadblocks and halted grain shipments to protest the tax, causing some food shortages. The Senate rejected the new tax, after Fernandez had sought legislative ratification.

Colombia

Colombian President Alvaro Uribe's fight against the country's biggest rebel group was strengthened as millions of Colombians marched nationwide to demand the end of the 44-year conflict and the release of all hostages. Colombians flooded the streets in Bogota, Medellin and Barranquilla for the ``Great Mobilization for Freedom and Peace'' march, on what is the 198th Colombian Independence Day, with concerts including a performance by Colombian pop star Shakira. Recently liberated French-Colombia politician Ingrid Betancourt headed a gathering in Paris backed by Colombian musician Juanes in front of the Eiffel Tower, and similar marches took place in Caracas, Buenos Aires, and Miami.

Costa Rica

Standard & Poor's raised its foreign currency sovereign credit rating outlook for Costa Rica to positive from stable on Monday, citing a decline in the government's debt burden. The sovereign credit rating of "BB", two notches below investment grade, was affirmed, S&P said in a statement. S&P cited buoyant tax revenues and continued good growth in gross domestic product as reasons contributing to its revision. "The ongoing improvement in the sovereign's fiscal and debt profile, combined with more exchange rate flexibility and a more effective monetary policy, could reduce Costa Rica's vulnerability to sudden external shocks, potentially improving creditworthiness," S&P sovereign credit analyst Joydeep Mukherji said in a statement. S&P said Costa Rica's expected entry this year into the DR-CAFTA, a trade agreement for Central America, will likely boost investment and specialization within the region and provide shelter "from possible protectionist pressures in the U.S. in case its economy decelerates more rapidly than expected."

Dominican Republic

Standard & Poor's Ratings Services said that it affirmed its 'B+/B' sovereign credit rating on the Dominican Republic and removed it from CreditWatch, where it was placed on Feb. 8, 2008, with negative implications. Standard & Poor's also said that the outlook on the Dominican Republic is negative. "The negative outlook reflects the Dominican Republic's widening fiscal and current account deficits," explained Standard & Poor's credit analyst Joydeep Mukherji. "These have led to increased debt and declining international reserves, resulting in diminishing external liquidity." It also reflects the growing risk that lower external liquidity and rising macroeconomic strain could hurt creditworthiness.

Mexico

Mexico's central bank raised its benchmark interest rate for the second straight month to curb the highest inflation rate in more than three years. The bank's five-member board, led by Governor Guillermo Ortiz, raised the key lending rate by a quarter percentage point to 8 percent, the highest since December 2005. Policy makers said the inflation outlook has worsened and they will raise their forecasts by an average of about half a percentage point in a quarterly report this month.

Peru

Peruvian Finance Minister Luis Carranza left office on a high note on Monday, stepping down as a second major credit rating agency raised the booming Andean country's rating to investment grade. Peru, once an emerging market pariah that defaulted on its debts two decades ago, is now a favorite among investors. Its economy has surged under President Alan Garcia, a former leftist who now staunchly defends free markets and fiscal prudence. Standard & Poor's elevated Peru's foreign currency sovereign credit rating to "BBB-", up one notch from "BB+", putting it on par with a rating Fitch awarded in April. With two investment-grade ratings, Peru will enjoy greater access to cheaper loans and more foreign investment. Garcia tapped Luis Valdivieso, a veteran from the International Monetary Fund, to replace Carranza. During nearly two years in office, Carranza oversaw annual economic growth of 9.0 percent, reduced the debt load, liberalized trade rules and helped keep inflation at around 4.0 percent a year. Though he will stay on as a special adviser to Garcia, he has told aides he wants to return to the private sector or academic work. Valdivieso, who investment bankers have praised, said he will build on the base Carranza left, aiming to keep inflation under control, make sure demand is not growing too quickly and fight poverty. The former IMF official was part of the team that reined in Peru's economic chaos after Garcia's first term from 1985 to 1990 ended in hyperinflation.

Venezuela

Venezuela's unemployment rate rose in June to 7.6 percent, from 7 percent in May, exceeding the median forecast of five analysts in a Bloomberg survey. The jobless rate was less than the 8.3 percent rate in the same month a year ago, according to a statement published on the Web site of the government-run National Statistics Institute.

AFRICA & MIDDLE EAST

Morocco

Rising food costs pushed Moroccan consumer prices up 4.7 percent in June versus the same month last year, official figures showed on Tuesday. The year on year figure in May was 5.4 percent. Food costs, inflated by soaring world commodity prices, grew 8.7 percent last month compared with June last year, according to the government's High Planning Commission. On a monthly basis, consumer prices eased 0.3 percent in June versus May as food prices declined 0.8 percent, the Commission added. In June, the government said it forecast annual inflation of 2.7-2.9 percent, up from an initial estimate of 2.0 percent. The government has increased its subsidies on fuel and basic foods to more 40 billion dirhams ($5.54 billion), from about 15 billion dirhams it envisaged earlier this year, in a bid to tame inflation. Financial authorities and business leaders were fearing that higher inflation may prompt the Central Bank to hike interest rates, which would stunt growth-- a government priority to create jobs and alleviate mass poverty. The government expects the economy to grow by 6.8 percent this year from 2.7 percent last year and at an average of 6.3 percent annually over the next four years.

Qatar

The Qatar Investment Authority (QIA), the energy exporter's $50 billion sovereign wealth fund, said it would diversify away from the weakening USD by investing more in Asia such as Japan, China, South Korea and Vietnam. With an estimated $800bln in Gulf Arab government assets after a tripling of oil prices in the past five years, the QIA said it intends to diversify its portfolio because most of the country's revenues are denominated in dollars. The agency's Head of strategy said the agency have been investing mostly, or principally, in the US. So, the strategy in terms of diversifying away from dollar assets would be investing outside of the US and Europe, into markets which are not as exposed to the greenback.

South Africa

South Africa's ruling African National Congress stepped up its effort to sideline President Thabo Mbeki, forcing him to assign its deputy president to a cabinet post and indicating it may fire two provincial governors he appointed. Western Cape Premier Ebrahim Rasool and Eastern Cape Premier Nosimo Balindlela, who backed Mbeki's failed bid to retain the party presidency in December, may be dismissed, the ANC said in an e-mail. Two days ago, Mbeki named former labor unionist Kgalema Motlanthe to his Cabinet, complying with an ANC directive issued almost four months ago.

Turkey

Turkey's ruling Justice and Development Party would win 40 percent of the vote if an election were held today, a survey by Metropoll Stratejik & Sosyal Arastirmalar showed, Vatan newspaper reported. That compares with 52 percent for Justice in a previous Metropoll survey in December, Vatan said. The main opposition Republican People's Party would get 14 percent, up from 10 percent in December, Metropoll's survey showed, according to the Istanbul-based daily. The right-wing Nationalist Action Party would receive 7.6 percent of the vote from 10.5 percent in December, Vatan said. The poll didn't distribute the preferences of 25 percent of respondents who said they were undecided voters, it said.
Turkey's central bank raised its benchmark interest rate to 16.75 percent as it seeks to regain credibility after surging global oil and food prices forced it to increase inflation targets. The Ankara-based bank added a half point to its overnight borrowing rate, according to an e-mailed statement.

ASIA

China

China's economy grew at the slowest pace since 2005 in the second quarter, prompting speculation the government will slow the yuan's gains to protect export jobs. Gross domestic product rose 10.1 percent from a year earlier, down from 10.6 percent in the first quarter, as exports weakened and the government curbed lending. Consumer prices rose 7.1 percent in June, slowing from 7.7 percent in May, the statistics bureau said in Beijing.

India

Fitch Ratings lowered India's domestic rating outlook to negative from stable on Tuesday, blaming the central government's worsening fiscal position. It maintained the country's BBB-minus rating for both its local currency rating and its foreign currency rating. The outlook on the country's foreign currency rating is stable. James McCormack, Fitch's head of Asia sovereign ratings, said the change in the outlook was also partly due to a notable increase in government debt issuance to finance subsidies not reflected in the budget.

Malaysia

Malaysian opposition figure Anwar Ibrahim has been arrested for sodomy, his lawyer said on Wednesday, setting the stage for a political showdown that could further rattle the country's financial markets. The former deputy premier had agreed to meet police on Wednesday in connection with a sodomy complaint lodged by a former aide, and police had warned they would arrest him if he did not show up for questioning. Anwar's lawyers had said he would go to the police at 0600 GMT, but the arrest came about an hour before that. "They say he was arrested under Section 377 of the Penal Code (sodomy)," Sankara Nair, Anwar's lawyer, said. "He was arrested as a suspect in the case. There was a lot of fear and intimidation. It's absolutely unnecessary." Nair said police could detain Anwar for up to 24 hours, after which they would have to obtain a remand order from the court to allow further detention for up to 14 days without charging him. Anwar, who is leading a charge by the opposition to seize power by September, is fighting the sodomy accusation, in a replay of scenes from a decade ago when he was jailed for sodomy and corruption. The authorities sealed off roads to the police headquarters where Anwar had been brought, while a water cannon was on standby and a helicopter circled overhead, as the authorities braced for a possible repeat of 1998 protests when Anwar's arrest brought tens of thousands onto the streets.
Malaysia's inflation rate may have reached a 26-year high after the government raised fuel prices, adding pressure on the nation's central bank to raise interest rates this week. Consumer prices may climb 7 percent ``or even higher'' this month after a similar gain in June, Second Finance Minister Nor Mohamed Yakcop said in Kuala Lumpur. That would be the fastest pace since January 1982, according to Malaysia's statistics department.Philippines The Philippine central bank raised its benchmark interest rate by the most since 2000 and forecast inflation will exceed last month's 14-year high on record oil and food prices. Bangko Sentral ng Pilipinas increased the rate it pays banks for overnight deposits by 0.5 percentage point to 5.75 percent, Governor Amando Tetangco told reporters in Manila.

Philippines

The Philippine central bank raised its benchmark interest rate by the most since 2000 and forecast inflation will exceed last month's 14-year high on record oil and food prices. Bangko Sentral ng Pilipinas increased the rate it pays banks for overnight deposits by 0.5 percentage point to 5.75 percent, Governor Amando Tetangco told reporters in Manila.

EMERGING EUROPE & CIS

Hungary

Hungary's government ruled on Monday that communist-era cars can stay on the road until 2020 without catalytic converters, extending the original 2008 deadline. The decree published in the official gazette Magyar Kozlony affects Trabant and Wartburg cars and Barkas minibuses and vans, the national news agency MTI said. A catalytic converter is fitted to road vehicles to remove toxic particles from exhaust emissions. The government threw a lifeline to owners of cars built during the communist era who argued that the number of the vehicles on the road had fallen sharply and pollution from their smoke-belching two-stroke engines was not significant. Millions of the cars once ran on the roads of Eastern Europe but their production in East Germany survived the collapse of communism two decades ago by only a few years. The Trabant with its Duroplast body, a composite of resin reinforced with cotton fibre, has become a motoring legend alongside the Germany's Volkswagen Beetle and the British Mini. There are an estimated 40,000 "Trabis" still running in Hungary.

Kazakhstan

Kazakhstan intends to fulfill all its commitment to democratic reforms ahead of taking up the chairmanship of the OSCE 2010. The country which will be the first former Soviet state to chair the organization has promised to reform its election laws and take steps to increase media freedom by the end of 2008.

Romania

Romania's current account deficit widened by 11 percent on the year to 6.5 billion euros ($10.37 billion) in the first five months of 2008. A year earlier, the deficit had expanded by 100 percent on an annual basis in January- May, after Romania's European Union accession removed customs taxes with member states. It reached a cumulative 16.9 billion euros at the end of 2007, or around 14 percent of gross domestic product. Economists have warned the shortfall makes Romania particularly vulnerable to any big outflows of foreign cash as the global credit crunch has made investors increasingly averse to riskier markets such as Romania. But export growth has picked up since the start of the year, while import growth slowed on the back of a weaker leu currency. Market watchers said this may also reflect a positive structural change in the Romanian economy, as foreign investment and technology imports are switching the new European Union member's exports towards high value added products.

Russia

Ratings agency Moody's upgraded Russia's government bond ratings on Wednesday, citing an ever-stronger balance sheet and reduced political risk after the transfer of the presidency. Moody's upgraded the bond ratings and country ceiling for foreign currency deposits to Baa1 from Baa2 with a positive outlook, with an A2 country ceiling for foreign currency bonds also with positive outlook and A1 country ceiling for local currency bonds and deposits confirmed with a stable outlook. Moody's senior analyst for Russia Jonathan Schiffer said Russia had paid down its direct debt to "relatively negligible levels" and praised the easy transfer of power from former President Vladimir Putin to current incumbent Dmitry Medvedev. "President Medvedev will continue, if not improve upon, the macro economic policy framework of former President Putin, who now serves as Prime Minister," the Moody's statement said. "Russian political risk has diminished with the smooth transition."
Russian producer prices rose in June at the fastest pace since December 2004 as energy and metal prices rose. The cost of goods leaving factories and mines in the world's biggest energy exporter surged 28.1 percent, compared with 25.1 percent in May, exceeding the 25.7 percent median forecast in a Bloomberg survey, the Federal Statistics Service said in an e-mail. Prices rose 4.9 percent in the month.

Slovakia

Slovakia should use adoption of the euro currency in 2009 to deepen reforms that will boost competition and support economic growth, the Organisation for Economic Cooperation and Development said on Thursday. The OECD, grouping 30 mostly industrialised economies, said in a report the euro changeover will boost prices in several sectors, but the overall impact on inflation should be small. Slovakia will become the 16th euro zone member in January after the government of leftist leader Robert Fico reduced the fiscal deficit and kept inflation low enough to meet the entry conditions despite a global surge in energy and food costs. The entry will cap a decade of transformation from a central European laggard to the economy with the European Union's fastest growth rate of 10.4 percent last year, thanks largely to market-friendly measures taken by the centre-right coalition Fico beat in a 2006 election. Andreas Woergoetter of the OECD's Economics Department said many euro zone members had experienced reform fatigue after they joined the single currency area, expecting economic growth to continue without further measures.

Ukraine

Ukraine will mine about 7 percent more coal this year and needs $670 million of spending to expand production by a further 13 percent next year, Coal Minister Viktor Poltavets said. Production will advance by about 5 million metric tons to 80 million tons this year, the minister told journalists in Kiev. Output may reach 90 million tons next year, he said. Ukraine relies on Russia for more than 70 percent of its natural-gas supply. Russia curbed supplies in January 2006 because of a price dispute. Ukraine's government, seeking to reduce that dependency, has pledged 3.1 billion hryvnias ($670 million) in state guarantees to improve coal mines and bolster production.

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Published on  Mon, Jul 21 2008, 10:39 GMT

Hong Kong Chief Executive Donald Tsang, his popularity at a record low

Mon, Jul 14 2008, 09:11 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentine central bank President Martin Redrado said emerging economies are coping with a global credit squeeze and helping to shore up economic growth across the world. ``Emerging markets are weathering very well for the first time a storm that has not been produced in emerging markets,'' he said in an Bloomberg Television interview in Aix-en- Provence, France. ``The deceleration will not be so big in the world economy because of the strength of emerging markets.''

Brazil

Brazil's inflation rate will rise to 6.40 percent at year-end, more than the 6.30 percent forecast made a week earlier, a central bank weekly survey said. The annual inflation rate 12 months ahead will be 5.32 percent, up from a previous forecast of 5.28 percent, according to the July 4 survey of about 100 economists. The central bank targets inflation at 4.5 percent, plus or minus 2 percentage points.

Chile

Chilean economic activity expanded 2.1 percent in May from the same month a year earlier, more than the 2.0 percent estimate of 17 economists in a Bloomberg survey. Economic activity expanded 4.8 percent in April.
Chilean economists raised their inflation forecast for this year by 2 percentage points, a central bank survey of economists showed. Consumer prices will rise 7.5 percent this year, according to the median estimate of 36 economists in a survey carried out between July 2 and July 8.

Ecuador

Ecuador's bonds tumbled after Finance Minister Fausto Ortiz resigned, renewing concern the government may default on about $10 billion of debt. The extra yield investors demand to own Ecuador's debt rather than U.S. Treasuries jumped 39 basis points, or 0.39 percentage point, to 6.5 percentage points at 12:30 p.m. in New York, according to JPMorgan Chase & Co.'s EMBI Plus index. The so-called spread is the widest since March 31. Ortiz resigned after government officials decided last night to seize 195 companies, including television stations, in a bid to collect debts stemming from a 1990s banking crisis, Ecuavisa TV reported.

Peru

Peru's central bank has ``limited'' ability to control inflation as prices surge for imported wheat, soybean and crude oil, central bank President Julio Velarde said. It could take longer than the bank had forecast to bring inflation back within the bank's 1 percent to 3 percent inflation target, Velarde said. The 12-month inflation rate is expected to slow to 3 percent next year from 5.7 percent through June, he said.

Venezuela

Venezuelan consumer prices rose 2.4 percent in June from the previous month, according to the country's national consumer price index, which includes prices from 10 major cities. Inflation was faster than the 1.9 percent median forecast from five analysts in a Bloomberg survey. So far this year, consumer prices have risen 15.1 percent, according to the national price index.

AFRICA & MIDDLE EAST

Egypt

Egyptian inflation accelerated to an average 11.7 percent in the fiscal year that ended June 30, Minister of Economic Development Osman Mohamed Osman said. Average annual inflation in the 2006-2007 fiscal year was 10.9 percent, Osman said, according to a statement released by the Cabinet.

Israel

Syrian President Bashar al-Assad said on Monday a military attack on Iran over its nuclear programme would have grave consequences for the United States, Israel and the world. Speculation of a strike against Iran's nuclear facilities has mounted following a report that Israel staged an air force exercise which was a rehearsal for such an attack. "It will cost the United States and the planet dear," Assad said in an interview with France Inter radio, adding that such an attack, if it occurred, would have an impact on Israel. "Israel will pay directly the price of this war. Iran has said so. The problem is not the action and reaction. The problem is that when one starts such action in the Middle East, one cannot manage the reactions that can spread out over years or even decades," said Assad who came to Paris for the EU-Mediterranean summit. Assad said logic would dictate that there would be no attack on Iran because of the serious repercussions, but such reasoning was not necessarily shared by the current U.S. administration. "This administration is an administration whose doctrine is a warmonger's doctrine. It does not reason with our logic, ours and that of most European countries, most countries in the world," Assad said.

Saudi Arabia

Ratings agency Fitch said it upgraded Saudi Arabia's long-term local and foreign currency issuer ratings to AAfrom A+, citing high oil prices. "At today's oil prices, Saudi Arabia is earning around one billion dollars a day from oil exports, reinforcing an already strong external balance sheet and creating a buffer against future shocks," said Charles Seville, associate director in Fitch's sovereign team, in a statement. Inflation has risen, but Fitch said that it "would have to worsen considerably to threaten the rating". Fitch revised the outlook on Saudi Arabia's ratings to stable from positive.

South Africa

South African Central Bank Governor Tito Mboweni said the global inflation outlook is ``bad'' and may be getting ``worse,'' Switzerland's Finanz und Wirtschaft reported, citing an interview. Mboweni said that the global economy could ``easily'' get into a situation like in the 1970s when there was no growth and inflation and interest rates were high, according to the Zurich-based newspaper. South Africa's inflation excluding energy and food stands at 6.1 percent, he said, according to Finanz und Wirtschaft.

ASIA

China

Hong Kong Chief Executive Donald Tsang, his popularity at a record low, was urged by Chinese Vice President Xi Jinping to overcome ``difficulties and challenges.'' Xi, who ended his first visit to the city since being appointed vice president in March, said Tsang should ``govern sensibly and reasonably,'' and overcome ``current problems,'' the South China Morning Post reported. At the same time, Xi said the government in Beijing supports Tsang's administration, according to text of his remarks from China's government Web site. Tsang's popularity has reached a record low according to a university survey, amid accelerating inflation and public anger over appointment of political appointees.

Indonesia

Indonesia's consumer confidence index dropped to a record low in June after the government increased fuel prices a month earlier and on concern that food costs will continue rising, a research body said. The index plunged to 65.3 last month, the lowest since the survey began in 1999, from 74.0 in May, according to the Jakarta-based Danareksa Research Institute, which surveyed respondents in six provinces. An index below 100 indicates more pessimists than optimists.

Philippines

The Philippines may lower its 2008 economic growth target for a second time in four months as the fastest inflation in 14 years cuts consumer spending and stifles manufacturing output. ``If the trend we see is very sharp increases in prices, we would have no choice but to adjust our targets,'' Economic Planning Secretary Augusto Santos told reporters in Manila. Growth may slow this quarter as inflation peaks, he said.

Thailand

A top leader of Thailand's People Power Party (PPP) was found guilty of vote buying and banned from politics for five years on Tuesday, a ruling that could lead to the dissolution of the main party in the coalition government. It is among several court cases coming to a head in July as supporters of former Prime Minister Thaksin Shinawatra and his opponents in the military and royalist establishment struggle for control of Thailand's future nearly two years after a coup.

EMERGING EUROPE & CIS

Hungary

The Hungarian central bank's decision to keep rates on hold at 8.50 percent on June 23 was backed by 6 rate setters, while 4 voted for a 25 basis point hike, including Governor Andras Simor and one of his deputies. This was the first time the rate-setting Monetary Council has voted down Simor, the minutes of the June 23 meeting published on Friday showed. Deputy Governor Ferenc Karvalits also voted for a hike while Deputy Governor Julia Kiraly voted to hold rates. Analysts said the minutes showed the Council was divided and the rate outlook was uncertain, even though no rate hike is expected this month. "The Council was quite divided and we cannot say that the minutes were not hawkish. Those who argued for keeping rates on hold wanted to slow (the rate hike) cycle," said David Nemeth at ING Bank.

Romania

EU newcomer Romania tops Standard & Poor's 2008 Fiscal Flexibility Index (FFI) due to the dominance of capital expenditures in its budget and a low overall level of tax productivity that indicates substantial potential for growth in revenues without hikes in tax rates, S&P said. The index, calculated for 30 European countries, indicates the governments' ability to adjust to adverse economic trends, and to react swiftly and effectively in the wake of economic shocks by modifying tax and expenditure policies in a way that safeguards smooth debt-service payments, S&P said in a report.

Russia

The Russian government's budget surplus amounted to 7 percent of gross domestic product in the first half of the year, the Finance Ministry said, citing preliminary figures. The surplus widened to 1.33 trillion rubles ($57 billion) from 1.26 trillion rubles in May, the Moscow-based ministry said in a statement on its Web site.

Slovakia

Fitch has upgraded the Republic of Slovakia's Long-term foreign currency Issuer Default rating (IDR) to 'A+' from 'A' and withdrawn the Rating Watch Positive that was assigned to the Long-term foreign currency IDR in May 2008. Fitch has also raised Slovakia's Country Ceiling to 'AAA' from 'AA', affirmed Slovakia's Long-term local currency IDR at 'A+' and Short-term IDR at 'F1'. The Outlooks for Slovakia's Long-term IDRs are Stable. "The upgrade of Slovakia's Long-term foreign currency IDR follows today's formal decision that it will become the 16th member of the euro area from January 2009," says David Heslam, Director in Fitch's sovereign team.

Slovenia

Slovenia's opposition centre-left Social Democrats (SD) have an edge over the ruling conservative Slovenian Democratic Party (SDS) two months ahead of a September 21 parliamentary election, a poll published on Friday showed. The results, published in the widely circulated Mladina weekly, were in line with most other opinion polls published in the European Union member state over the past weeks.

Turkey

Inflation forecasts in Turkey rose in early July, dashing hopes that a surprise drop in food prices last month might be the first sign of broader relief and boosting the prospects for an interest rate hike later this month. The central bank's bimonthly survey of inflation expectations, published Wednesday, found that experts and decision-makers in Turkey's economy expect consumer of price inflation to reach 11% at the end of 2008, up from the June survey projection of 10.7%. The jump belies the fact that June inflation actually declined on the month due to a sudden but significant decline in food prices. The Turkish lira dived on the news, with the USD-TRY rate jumping 1% to above 1.22 within minutes of the data's release. The currency later retraced to TRY 1.21 against the dollar.

Ukraine

Ukraine's Cabinet lowered this year's budget-deficit target to 1.95 percent of gross domestic product from 2.1 percent as it tries to damp Europe's fastest inflation. The changes to the law on the budget were submitted to lawmakers, Prime Minister Yulia Timoshenko told a news conference in Kiev. She and President Viktor Yushchenko have been arguing over domestic policy, including how to fight inflation and the sale of state assets. The president urged the government to bring down the inflation rate, at 31.1 percent in May, by cutting spending.

INDUSTRIAL COUNTRIES

Iceland

Iceland's CB Governor Fridriksson stated to Reuters that the CB expects the krona to regain some of its strength as it is trading at historically low levels. Fridriksson expects that the krona will not depreciate further given the low levels it is already trading at. Fridriksson acknowledged that last year the CB had expected the krona to depreciate but that this has occurred at a much faster pace than was envisaged. The unit is currently at around 120/Eur and as a high-yielder has been prone to volatile trade. The unit has especially come under pressure over concerns of the domestic banking sector. The govt and CB have been attempting to boost confidence over its economy and banking sector but Fridriksson concedes that the negative environment prevailing in global financial markets is rendering it difficult to deflect the consequent impacts on the domestic economy.

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Published on  Mon, Jul 14 2008, 09:11 GMT

Peru's consumer prices rose 5.71 percent in the 12 months through June, the government reported

Mon, Jul 7 2008, 08:26 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's lower house of congress approved the government's plan to increase taxes on exports of grains and oilseeds, risking a resumption of three months of strikes by farmers. The measure, passed by a vote of 128 to 122 after 17 hours of debate, requires Senate approval to become law. It ratifies a March 11 government decree that sparked protests among farmers in Argentina, the world's second-largest exporter of corn and third-largest of soybeans.

Brazil

Brazil's industrial output expanded less than economists expected in May, easing pressure on the central bank to accelerate interest-rate increases. Industrial production rose 2.4 percent in May from the year-ago month, compared with a revised 10 percent jump in April, according to a national statistics agency report distributed in Rio de Janeiro.

Chile

Chile's annual inflation rate accelerated to the fastest pace since 1994 in June, cementing expectations that the central bank next week will raise interest rates for a third time in 2008. Consumer prices in the 12 months through June rose 9.5 percent, compared with 8.9 percent in the year through May, the government said.

Colombia

Colombia's central bank chief Jose Dario Uribe said policy makers have taken sufficient steps to keep inflation in check including a rise in the overnight rate to a six-year high. ``I think we've done what we have to do to control inflation and inflation expectations,'' Uribe said in an interview in Basel, Switzerland, where he was attending a meeting of central bankers at the Bank for International Settlements. The central bank, which has an inflation target of 4.5 percent, has raised interest rates 15 times from 6 percent in April 2006 to 9.75 percent in a bid to cool inflation.
The bloodless rescue of former Colombian presidential candidate Ingrid Betancourt and 14 other hostages puts President Alvaro Uribe within sight of his most cherished goal: crushing the guerrillas who have spent 44 years trying to overthrow the government. The captives' liberation deprived the Revolutionary Armed Forces of Colombia of its last major bargaining chips and proved the wisdom of Uribe's hard-line policies, analysts said. The FARC, as the group is known, was already reeling from the deaths this year of three top leaders, desertion of dozens of its most seasoned commanders and betrayal by one of its security chiefs. ``The FARC are for all intents and purposes finished,'' said Michael Shifter, vice president of the Inter-American Dialogue, a policy research group in Washington. ``There will still be violence in Colombia, and certain FARC fronts will remain heavily involved in the cocaine trade, but now nobody is going to care.'' For Uribe, 55, the rescue provides a boost of international prestige at a time few Latin American leaders have backed him in his confrontation with Venezuelan President Hugo Chavez and a much sought-after free trade accord with the U.S. languishes in its Congress.

Mexico

Mexican Finance Minister Agustin Carstens said inflation has probably peaked though unexpected increases in food prices may derail that forecast. ``Core inflation is pretty much under control,'' Carstens said in an interview on the Televisa television network. He said he expected inflation to end the year below 5 percent. Annual inflation accelerated to 5.28 percent in the first half of June, the highest rate since December 2004 and above the central bank's forecast of 4.5 percent to 5 percent in the second and third quarters of this year.

Peru

Peru's consumer prices rose 5.71 percent in the 12 months through June, the government reported. The inflation rate was higher than the 5.39 percent rise in May, the National Statistics Institute said in a report.

AFRICA & MIDDLE EAST

Ethiopia

Not many people seek their fortune in Ethiopia. Yet former computer consultant Bhanu Prasad took a friend's advice in 2002 and left home in Hyderabad, India, to try his luck at flower farming in the east African country. ``He said, `It's a country coming up, it's safe, and the climate is good for flowers,''' Prasad said. ``We guessed the business would take off.'' Today Prasad's 10 hectares (25 acres) of greenhouses in the central Ethiopian town of Debre Zeit send 40,000 roses a day to the world's largest flower market in Amsterdam. He employs some 300 Ethiopians and is one of 70 commercial flower operations to open in the country since 2002. Ethiopia, which suffered an estimated 1 million deaths during famines in the mid-1980s, is handing over arable land to entrepreneurs. As a result, flower exports have grown to $125 million from $159,000 six years ago, helping make the country Africa's second-largest flower exporter, after Kenya.

Iran

The United States and its allies will not allow Iran to hamper shipping in the Gulf, the waterway that carries crude from the world's largest oil exporting region to the world, the U.S. Navy's Fifth Fleet said on Monday. The head of Iran's Revolutionary Guards said in remarks published on Saturday that Tehran would impose controls on shipping in the Gulf and Strait of Hormuz if Iran was attacked. "They will not be allowed to close it (the strait)," Vice-Admiral Kevin Cosgriff told a media briefing in Bahrain, according to a Fifth Fleet spokesman. Cosgriff, the commander of the Bahrain-based fleet, was speaking about an "interest shared with international community to keep that vital waterway free for shipping", the spokesman said. Oil flows through the Strait of Hormuz, a narrow waterway at the mouth of the Gulf separating Iran from the Arabian Peninsula, accounts for about 40 percent of the world's traded oil supply. Oil hit a new record of $143.54 a barrel on Monday on rising tension between Iran and Israel over Tehran's nuclear programme which the United States and the Jewish state say is meant to build an atomic bomb. Iran says the programme is peaceful. Speculation about a possible attack on Iran has risen since a report this month said Israel had practised such a strike, prompting tough talk of retaliation, if pushed, from Tehran.

Kenya

Kenya's economy shrank by 1.3 percent in the first quarter as violence following a disputed presidential election resulted in a loss of production in the leisure and agriculture industries. The decline in economic output compared with a growth rate of 7.7 percent a year earlier, the Nairobi-based National Bureau of Statistics said in an emailed statement today. ``The economic implication of the post-election violence and the loss incurred was the main cause of the decline in some key sectors of the economy,'' the bureau said.

Mali

Standard & Poor's Ratings Services said that it withdrew its 'B' long-term and 'B' short-term foreign and local currency sovereign credit ratings on the Republic of Mali. The withdrawal comes at the client's request. At the same time, the 'BBB-' transfer and convertibility (T&C) assessment was also withdrawn. The ratings are constrained by Mali's low level of economic development, lack of fiscal flexibility, and the economy's high vulnerability to external shocks. The ratings also reflect the country's eligibility for strong donor support and membership in the West African Economic and Monetary Union (WAEMU).

Turkey

Turkish police detained more than 20 people suspected of ties to a group of alleged coup plotters, including two retired generals and the chief of Ankara's main business lobby, deepening a split between the government and opponents who accuse it of illegally promoting religion. Former generals Hursit Tolon and Sener Eruygur were arrested, a spokesman for the Ankara police said by telephone. Authorities had to break down the door of Tolon's home in the capital, the spokesman said. Ankara Chamber of Commerce chief Sinan Aygun was also taken into custody, said Melih Cuhadar, a spokesman for the chamber. The sweep came hours before prosecutors presented an indictment to the Constitutional Court to close down Prime Minister Recep Tayyip Erdogan's Justice and Development Party.
Turkish inflation unexpectedly slowed for the first time in five months in June, easing pressure on the central bank to raise interest rates. The inflation rate fell to 10.6 percent from 10.7 percent the month before, the statistics office in Ankara said on its Web site today. Prices were expected to rise 11.6 percent, according to the median estimate of 16 economists surveyed by Bloomberg. None predicted a slowdown. In the month, prices fell 0.4 percent.

South Africa

South Africa's statistics office plans to reduce the weighting of food in the consumer price index as of next year, possibly cutting the inflation rate. ``We are likely to see a drop in the level of inflation because of the lower weighting of food,'' Patrick Kelly, head of consumer price data at the statistics office, said in an interview in Johannesburg. ``This is because currently the rate of change in food is higher than the average rate of change in prices.''

South African Treasury Director General Lesetja Kganyago said the country's ratio of savings to gross domestic product declined in the first half of the year. Savings fell to 13 percent of GDP in the six months to June 30, compared with South Africa's investment needs of 22 percent of GDP, Kganyago said in a speech in Johannesburg. That compares with a savings ratio of 14.1 percent in the same period last year.

ASIA

China

China, the world's second-largest crude oil consumer, must intensify efforts to save energy and cut so-called greenhouse gas emissions, Premier Wen Jiabao said. The country will resolutely restrict excessive growth of high energy-consuming and polluting industries, Wen told a State Council meeting in Beijing this morning, according to the government's Web site. The government will continue to impose ``strict'' limits on exports of products that use large amounts of energy during the production process, the statement said.
China is drafting regulations to control cross-border payments for services to curb rising inflows of ``hot money'' betting on gains in the yuan, according to an official at the nation's currency regulator. Controls on international payments for consultancy or franchising fees are ``relatively weak'' and need to be strengthened to stop speculative capital inflows, said the official at the State Administration of Foreign Exchange, who declined to be named.

Indonesia

Indonesia's central bank raised its benchmark interest rate for the third month in a row after record oil and food prices drove inflation to the fastest in almost two years. Governor Boediono and his seven colleagues increased the key rate to 8.75 percent from 8.5 percent, the central bank said in Jakarta.

Malaysia

Malaysia's central bank Governor Zeti Akhtar Aziz said inflation in June may have accelerated to 6 percent to 7 percent after the government raised fuel prices, the Edge Financial Daily reported, citing a Reuters interview. Bank Negara Malaysia will take action in the event of generalized price increases, Zeti was cited as saying.
Malaysia's economy can hit the official 5 percent growth target this year as the fundamentals are strong, the prime minister said on Monday, vowing to put an end to political uncertainties that have roiled financial markets. "I think 5 percent is achievable," Abdullah Ahmad Badawi told Reuters in an interview at his office in the administrative capital. He said the political situation would soon stablise. Malaysia has been rocked by sodomy allegations against opposition politician Anwar Ibrahim and a fresh assertion by a private detective -- which was abruptly retracted -- linking Deputy Prime Minister Najib Razak to a murder case. "We will continue to take whatever measures necessary to ensure that the investment climate in Malaysia will continue to be favourable," he said. "It's not a case of weakening fundamentals. The fundamentals of the economy are still strong."

Mongolia

A riot in Mongolia's capital over alleged election fraud has killed five people, dampening hopes for a period of stable government to develop the mining sector and tackle inflation. President Nambariin Enkhbayar declared a four-day state of emergency late on Tuesday after protesters upset over last weekend's election clashed with police and set fire to the ruling Mongolian People's Revolutionary Party (MPRP) headquarters. The emergency rule -- the first in Mongolia's history -- means protests are banned and security forces can use tear gas and rubber bullets to break up demonstrations. "At this moment, the situation in the capital city is relatively normal. It is very peaceful compared to yesterday, but the troops need to stay in the street," the chief of police, Amarbold, said on state television. Justice Minister Monkh-Orgil said about 220 civilians and 108 servicemen were injured in the clashes. Around 700 protesters have been detained.

Philippines

Philippine authorities have foiled a fresh plot to oust President Gloria Macapagal Arroyo, arresting an opposition lawyer, three retired colonels and a former police officer, the national police chief said on Thursday. Avelino Razon said the group was also trying to extort up to $10 million from a Japanese trader in a bid to raise funds to launch destabilisation activities to topple Arroyo. "We have enough basis to charge them for a plot to commit coup d'etat," Razon told reporters, adding the police have expanded an inquiry to determine the extent of the new plot and "find out who else might be involved". Officers were piecing together details of the fresh plot after stumbling across it in the course of an extortion inquiry, he said.

Rising food prices in the Philippines pushed its June inflation rate to 11.4 per cent, the highest level in 14 years, the government said. The upturn exceeded the forecasts of both the central bank and many private analysts who had expected inflation to range from 10.4 to 11.2 per cent. This was also the highest rate since May 1994 when the inflation rate hit 11.5 per cent, the National Statistics Office said in a statement.

Thailand

Thailand's inflation rate may slow later in 2008 as the pace of oil price gains will have eased, Finance Minister Surapong Suebwonglee said. ``Inflation may not reach double digits,'' Surapong said in Bangkok. Costlier oil is the main reason inflation accelerated to a 10-year high of 8.9 percent in June, the Commerce Ministry said.

EMERGING EUROPE & CIS

Armenia

Fitch Ratings has upgraded Armenia's Long-term foreign and local Issuer Default ratings (IDRs) to 'BB' from 'BB-' (BB minus). The Outlooks have been changed to Stable from Positive. The agency has also upgraded the Country Ceiling to 'BB+' from 'BB' and affirmed the Short-term IDR at 'B'. Fitch's upgrade of Armenia's sovereign ratings reflects the economy's rapid growth, rising incomes and strong policy framework, which the agency cited as potential triggers when it placed the ratings on Positive Outlooks in May 2007. The Armenian economy grew 13.8% in 2007, extending a five-year rolling average of 13% annual growth. This buoyed average incomes to around the 'BB' median of USD3,000 in 2007, easing a previous rating weakness.

Hungary

Hungary's farm sector will not benefit from recent gains in the forint currency as it bites into export performance, the agriculture minister was quoted by national news agency MTI as saying on Friday. Hungary's forint rallied to 5-1/2 year highs below 233 versus the euro on Friday, boosted by Hungary's high interest rates and the abolition of its old trading band earlier this year, which capped gains at the 240-level. While helping the central bank in its fight against inflation by reducing the cost of imported goods, the farm minister said at these levels the currency was set to erode overall farm sector profitability. "The strong forint does not help agriculture, moreover, it is bad for the Hungarian farm sector, which produces significant exports," Agriculture Minister Jozsef Graf was quoted by MTI as saying. Hungary's farm sector registered a trade surplus of 1.6 billion euros last year, making it one of the best performers in the 27-member European Union, as exports worth 4.8 billion euros far outperformed imports worth 3.2 billion, Graf said.

Kazakhstan

In a clear vote in favor of economic growth over price stability, Kazakhstan is lowering its official interest rates even as food prices drive the local inflation rate above 20%. Tuesday, the same day as the National Bank of Kazakhstan's benchmark cut its refinancing rate to 10.5% from 11%, the national statistics agency reported consumer prices rose 1.2% on the month in June and surged 20% on the year. The rate cut "clearly underlines the fact that the bank sees the support of economic growth as its top priority," said Unicredit analyst Vladimir Osakovsky. "Inflation has taken a back seat," said Tatiana Orlova, an economist for ING. Senior Federal Reserve and European Central Bank officials have called on their peers in emerging economies to tighten monetary policy in the face of soaring commodity prices. But Kazakhstan may be a special case, as its surging commodity revenue masks serious domestic financial strains, including tumbling house prices and a bank-lending drought.

Poland

More interest rate increases may be needed in Poland but are unlikely before October, central bankers were quoted as saying on Friday. "For me the most important is the central bank's inflation projection and data from the Polish economy," Marian Noga, a member of the rate-setting Monetary Policy Council (MPC), told the daily Rzeczpospolita. Noga signalled he would wait with further monetary policy tightening until a new inflation projection arrives in October but he also said the MPC's actions cannot be rapid. "I think that one cannot rapidly hike rates to curb inflation," Noga said. Another MPC member, Dariusz Filar, told the Puls Biznesu daily more rate hikes were seen: "One must take into account the possibility that interest rates will have to continue to grow both this year and in the next one," Filar said.

Romania

Romania's consolidated budget revenues grew 36 percent on the year to 74.8 billion lei ($32.5 billion) in the first half of the year, data from the finance and economy ministry showed on Friday. Revenues amounted to roughly 16 percent of the latest government forecast gross domestic product for this year. The centrist minority government targets revenues at around 39 percent of GDP in 2008, including the absorption of some 2 billion euros worth of European Union funds. Ministry officials have said Romania has a good chance of meeting this year's goal due to a strong rise in revenue thanks chiefly to strong wage growth and improved tax collection. It undershot last year's initial revenue target of 35 percent of GDP by roughly 3 percentage points. Romania, which has already revised this year's deficit target once and is on the brink of a second budget revision, has been repeatedly criticised for unpredictable spending and insufficient transparency in its public finances. Observers say the government's pro-cyclical fiscal policies hinder the central bank's efforts to tame stubborn inflation. The government targets a deficit of 2.3 percent of GDP for 2008.

Russia

Fitch Ratings has affirmed the Russian Federation's Long-term foreign and local currency Issuer Default ratings (IDR) at 'BBB+', with Stable Outlooks. At the same time, the agency affirmed the Short-term foreign currency IDR at 'F2' and the Country Ceiling at 'A-' (A minus). "High commodity prices are continuing to strengthen Russia's current macroeconomic and financial position, exerting upward pressure on its 'BBB+' sovereign ratings," says Edward Parker, Head of Emerging Europe sovereigns at Fitch. "Nevertheless, Russia's ratings are currently constrained by Fitch's concern over economic overheating and inflation, in the context of a relatively weak banking system, which risks sowing the seeds of a painful macroeconomic and financial correction." Russia's ratings are underpinned by its sound public finances. General government debt was just 8.6% of GDP at end-2007, compared with the 'BBB' range median of 28%. Fitch expects the general government to run a budget surplus of around 6.3% of GDP this year, buoyed by oil prices, helping it to accumulate around USD275bn (16% of GDP) in its sovereign wealth funds by early 2009. However, government spending rose by over 2pp of GDP in 2007, adding to demand pressures.

Ukraine

Ukraine's central bank weakened the hryvnia's official exchange rate against the dollar after keeping it unchanged since June 26. The Natsionalnyi Bank Ukrainy set the currency at 4.8493 per dollar for tomorrow, compared with 4.8489 on June 26, according to its Web site. The bank, based in the capital Kiev, strengthened the hryvnia by 4 percent to 4.85 on May 21 to curb inflation, which accelerated to 31 percent last month.

INDUSTRIAL COUNTRIES

Iceland

Iceland's central bank held interest rates at 15.5 percent on Thursday, as broadly expected, and predicted it would start relaxing policy by the second quarter of 2009 once inflation finally eases. The central bank, Sedlabanki, has raised interest rates sharply over the past four years to the current record level to cool a surging economy and rein in rising price pressures, which recently have been exacerbated by a slump in the local currency. But the economy weakened during the first quarter and it is expected to show hefty contractions in both 2009 and 2010. Slower economic activity, the central bank says, will help push inflation back down. Sedlabanki said fighting inflation and getting it back to target took precedence over signs of a looming recession. It added inflation, running at a near 18-year high of 12.7 percent, was expected to peak in the third quarter of this year.

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Published on  Mon, Jul 7 2008, 08:26 GMT

Nigeria's inflation rate rose to 9.7 percent in May

Mon, Jun 30 2008, 13:06 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Growth in Argentina's tax revenue may have slowed in June as quickening inflation, declining consumer confidence and a three-month farm strike took their toll on South America's second-biggest economy. ``I certainly see some deceleration in revenue,'' said Bertrand Delgado, an economist at IDEAglobal Inc. in New York. Slowing tax income may endanger President Cristina Fernandez de Kirchner's economic policy of maintaining budget surpluses as a way of insulating the country from turmoil in international financial markets. Government spending rose 39 percent in May compared with an increase in tax revenue of 28.5 percent. Consumer confidence fell to a five-year low this month as a farmers strike and inflation concerns led families to put off purchases of durable goods.

Brazil

Brazil posted a $649 million current account deficit in May, the central bank said. The deficit in the current account, the broadest measure of trade in goods and services, was less than the $3.31 billion deficit posted in April. The median estimate in Bloomberg survey of 23 economists was for a deficit of $1.15 billion. Foreign direct investment fell to $1.3 billion in May from $3.9 billion in April, the bank said.
Brazil's unemployment rate fell to its second lowest level in more than six years, boosting expectations that the central bank will accelerate the pace of interest rate increases. Joblessness in Brazil's six largest metropolitan areas fell to 7.9 percent in May from 8.5 percent in April, the government said.
Brazil's mid-month consumer prices had their biggest jump in four years and the central bank forecast the fastest year-end inflation since 2004, cementing expectations that policy makers will push interest rates higher. Inflation as measured by the IPCA-15 index rose 0.9 percent through mid-June, up from 0.56 percent a month earlier, the government said.

Chile

Chile's peso dropped to a six-month low as concern an economic slump will deepen cut into demand for the country's assets. The peso declined 0.6 percent to 504.40 per dollar at 11:36 a.m. New York time from 501.47 yesterday. Earlier, it fell as much as 1.2 percent to 507.71, its weakest level since Dec. 3. Chile's economy expanded 3 percent in the first quarter, the slowest pace since 2003. Finance Minister Andres Velasco said last week that the economy has slowed as gas, electric and water industries contracted and mining output fell short of expectations because of accidents and labor disputes. Growth may slow further as the central bank on June 10 raised its benchmark lending rate by a half percentage point to 6.75 percent in a bid to bring the inflation rate down from a 13- year high.

Colombia

Colombian President Alvaro Uribe called for a referendum on holding a new presidential election after the Supreme Court asked for a review of a constitutional cha