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Emerging Markets Weekly

Iraq is inching toward attracting the billions of dollars needed to revamp its oil sector

Mon, Feb 18 2008, 12:26 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Venezuelan President Hugo Chavez said Argentina, which is facing energy shortages this year, can count on Venezuela to supply oil and natural gas. Argentina ``has no need to worry'' about energy supplies, Chavez said during a meeting with representatives from the Argentine government, in comments broadcast by Venezuelan state television.
Unions representing 70 percent of registered workers in Argentina are demanding wage increases of as much as 30 percent, saying they need the raises to match inflation that's three times the officially reported figure. ``We just want to recover the purchasing power we lost,'' Juan Jose Zanola, head of the union for 90,000 bank employees, said in an interview.

Brazil

Brazil's Finance Minister Guido Mantega expects the country to obtain an investment grade rating this year. Brazil has been unaffected by turmoil in international markets, he told reporters in Brasilia. The country's current inflation level is ``comfortable'' and remains ``totally'' in line to meet the central bank's target, he said.
Brazil's real interest rates are coming down steadily as Latin America's largest economy opted for a quick process of curbing inflation, central bank President Henrique Meirelles said. ``Other countries chose to lower inflation over many years, but Brazil chose a quick disinflation program,'' Meirelles said at an investor conference in New York. ``As a result, the inflation premium is coming down steadily over the past years.''
Brazil's monthly inflation slowed in January for the first time in four months as food prices eased. Consumer prices, as measured by the benchmark IPCA index, rose 0.54 percent in January, down from a 0.74 percent jump in December.

Colombia

Banco Bilbao Vizcaya Argentaria SA plans to double investment in Colombia this year and enter the leasing and microcredit-loan business in South America's second- fastest growing economy. BBVA Colombia, a unit of Spain's second-biggest lender, will spend 282 billion pesos ($148 million) in boosting its local operations, from 142.7 billion pesos in 2006, Oscar Cabrera Izquierdo, who took over as the unit's president this year, told reporters in a Bogota news conference, according to a statement from his office.
Colombia's peso rose to an almost eight-month high on speculation the U.S. Federal Reserve will cut its key lending rate next month, boosting the appeal of higher-yielding, emerging-market assets. Colombia's benchmark overnight lending rate is 6.5 percentage points higher than the U.S. benchmark rate, the widest difference since January 2002.

Dominican Republic

Standard & Poor's said it had placed Dominican Republic's sovereign ratings on negative credit watch due to uncertainty surrounding the payment of four promissory notes due between March and July, worth $6.8 million each. The notes are part of a series totalling $130 million issued over the course of 2006 to SunLand Corporation and sold to other investors, S&P said, explaining that "questions have arisen over their legality." According to the ratings agency, the notes were not approved by Congress and signed by the minister of finance, as determined by Dominican law. "The Dominican Republic has a history of poor debt management and lack of transparency. Furthermore, this incident calls into question the integrity of the fiscal accounts," S&P said in a statement.

Ecuador

Ecuador reported a $50.2 million trade deficit in December after imports surged 21 percent. For all 2007, Ecuador registered a $1.27 billion trade surplus, down 12 percent from $1.45 billion in 2006, the central bank reported on its Web site. Ecuador recorded a trade surplus of 128.9 million in November. President Rafael Correa has said an increase of manufactured imports such as mobile telephones and cars is the largest threat to the Andean country's economy.

Mexico

Mexican President Felipe Calderon, on a tour of the U.S., said emigration will be reduced by creating jobs and fostering economic growth at home. ``It's possible to transform Mexico from a nation that loses its best people to migration into a nation capable of generating opportunity for Mexicans on their own soil,'' Calderon said yesterday at Harvard University's John F. Kennedy School of Government in Cambridge, Massachusetts. To help foment that growth Mexico's government and private companies will invest 500 billion pesos ($46.4 billion) annually to build highways, ports and airports during the next four years, said Calderon, who earned a master's degree in public administration from the Kennedy School.
Mexico's government plans to present an initiative to open the state oil industry to foreign and private investment by the end of March, Energy Minister Georgina Kessel said. ``That's when we will be able to show a bit more what we've been working on,'' Kessel said. A bill would be submitted to congress later this year, she said during an interview broadcast on Grupo Televisa SAB.

Venezuela

Venezuelan President Hugo Chavez's policies have slashed the South American country's oil production by 1.2 million barrels a day, enough to supply 80 percent of demand on the U.S. East Coast, according to Cambridge Energy Research Associates. Output from Venezuelan fields has plunged by more than one- third since Chavez assumed the presidency in 1999 because of a lack of investment by the country's state oil company, Rene Ortiz, a Cambridge Energy Research Associates senior associate, said in an interview in Houston. Another factor was the replacement of engineers with military personnel ill-equipped to manage oil fields, he said.
Exxon Mobil Corp. is demanding more than 10 times the compensation the company could rightly deserve from Venezuela for the nationalization of an oil venture, the country's top oil official said. Oil Minister Rafael Ramirez said Exxon Mobil's losses and past investments stemming from Venezuela's nationalization decision last year "wouldn't even reach 10 percent" of the $12 billion in assets the company has sought to freeze in court. "They ask for too high an amount for their compensation," Ramirez said.

AFRICA & MIDDLE EAST

Iraq

Iraq is inching toward attracting the billions of dollars needed to revamp its oil sector but international oil companies are still not ready to commit the massive sums required. Iraq has the world's third largest oil reserves, its reservoirs are among the cheapest anywhere to develop and the country is desperate for investment after years of sanctions and war. The lure of Iraq is all the more powerful as big oil has limited access to the Middle East's lucrative oilfields, which are mostly off-limits to foreign investors. An oil official said last year Iraq's oil sector could need as much as $75 billion. U.S. officials say the main reason foreign oil majors have avoided Iraq is the lack of an oil law, not security concerns. Security has improved, although it is still a dangerous country.

Nigeria

The cost of lending money in Nigeria will remain high for the next year or two until people are convinced that inflation has been tamed, said central bank governor Chukwuma Soludo. ``If we sustain single-digit inflation for two or more years, a lot of people will begin to have confidence in the system'' and interest rates will fall, Soludo told a conference in the capital Abuja.

South Africa

South Africa's economic growth will probably slow to 3.9 percent this year as power outages crimp mining production, the Bureau for Economic Research said. Gross domestic product expansion will ease from an estimated 5 percent in 2007, the bureau, based at the University of Stellenbosch near Cape Town, said in an emailed statement. This year's growth rate was cut from the 4.5 percent estimated in the bureau's fourth-quarter report.
International rating agency, Standard & Poor's (S&P), has dismissed suggestions that South Africa is facing a recession. The agency says the country's economy is in a better place compared to most developed countries. Last week, some economists warned of a possible recession. S&P was speaking at the launch of its first office in Africa, in Johannesburg. The agency says the power cuts were unfortunate, but for now it's satisfied with efforts to sort out the problem.
South Africa’s rand rose against the dollar for a third day as gold and platinum soared, stoking demand for asset from the world’s biggest producer of precious metals. The rand advanced against all 16 most-actively traded currencies monitored by Bloomberg. It was the best performer versus the dollar, euro and Japanese yen as South African equities rose and foreign investors turned net buyers of the country’s bonds.

ASIA

China

China brought back power to 22 million households and increased reserves of energy coal as the country recovers from the worst snowstorms in 50 years. About 93 percent of power outages caused by heavy snow and ice have been fixed, the State Council's Disaster Relief and Emergency Command Center said in a statement posted on the National Development and Reform Commission's Web site.
China's money supply unexpectedly grew at the fastest pace in 20 months in January as the central bank pumped cash into the financial system ahead of the nation's biggest holiday festival. M2, the broadest measure, rose 18.9 percent to 41.78 trillion yuan ($5.8 trillion) from a year earlier, the People's Bank of China said on its Web site.

India

India's Finance Minister Palaniappan Chidambaram asked state-run banks to boost loans for the purchase of homes and consumer goods, which he said were key to economic growth. ``There is a feeling that adequate credit is not being provided to the housing sector and the consumer durables sector,'' Chidambaram said in New Delhi after meeting chiefs of state-run banks.

Indonesia

Fitch Ratings has raised the rating on Indonesia's foreign and domestic currency debt to BB from BB-minus, praising its aggressive structural reforms which it said are seeking to offset the weak investment climate. The outlook on both ratings is stable. "Positive economic growth and balance of payments (BOP) implications had already become evident in 2007, enabling Indonesia to enter the current period of tightened global credit conditions and weaker external demand on a firmer footing," said Ai Ling Ngiam, Director in Fitch.

Philippines

The Philippine central bank may further ease currency-trading rules ``to make the market function well,'' Governor Amando Tetangco said. ``We may liberalize foreign-exchange regulations in the area of investments and what banks can do on the foreign-exchange side,'' Tetangco told reporters in Manila, without elaborating. To restrain gains in the peso, the central bank three times last year raised the amount of foreign exchange that companies and individuals can buy or invest overseas without its approval.
Families of overseas Filipino workers (OFWs) show that they value the remittances sent home by their kin by not spending them on vices and useless purchases, a study by the Philippine Institute for Development Studies says. Aubrey Tabuga, the author of the study, "How Do Filipino Families Use the OFW Remittances?" says the money remitted by the OFWs to the country does not tend to induce households to spend more on vices, such as smoking tobacco and drinking alcohol. Tabuga added that the families, however, also allocate less for food, particularly the kind that they have to buy outside. Instead, she said, the families receiving remittances set aside more of the money for basic goods and for education, health care, and housing.

South Korea

South Korea's consumer confidence rose last month to the highest in more than five years, an indication that households may increase spending and drive economic growth. The sentiment index advanced to 105.9 from 104 in December, the National Statistical Office said in Gwacheon. A reading higher than 100 signals optimists outnumber pessimists. The lowest jobless rate in five years and wage gains are encouraging consumers to buy more cars, clothes and luxury goods even as fuel costs climb. The government forecasts domestic demand will account for 90 percent of an estimated 4.8 percent economic growth rate this year as exports cool.

Sri Lanka

Sri Lanka has been given B+ ratings despite its worsening fiscal indicators and a negative outlook, to give it a chance to turn around the current debt level and fiscal deficit, Standard and Poor's rating services agency said. "We are giving Sri Lanka the benefit of the doubt that the pace of improvement would be such that they (Sri Lanka) will quickly catch up other B+ rated (countries) in terms of their debt level, fiscal deficits etc." said Elena Okorotchenko, a senior director at the S&P Rating Services Agency. "If you look at Sri Lanka's indicators such as debt levels, deficit levels, external indicators... we consider that Sri Lanka's indicators are worse than most of the similar rated peers."

Turkey

Turkey's central bank lowered the benchmark interest rate by a quarter point, its sixth consecutive reduction, as the economy grew at the slowest pace in six years and inflation declined. The Ankara-based bank reduced its overnight borrowing rate to 15.25 percent, still the highest in Europe, according to an e- mailed statement.

EMERGING EUROPE & CIS

Bulgaria

Bulgarian think tank Centre for Economic Development (CED) said it expected the country's economic growth to exceed 6% this year in real terms. Following the expected slow-down in the economic growth in the last quarter of 2007, experts put it at 5.5% year-upon-year and forecast that it will resume its momentum in 2008, fuelled by the good results in Bulgaria's industry and services sector, the steady inflow of foreign investments and EU funds, as well as the impact of a few huge infrastructure projects. Foreign direct investments in Bulgaria (FDI) will top EUR 6 B this year, the think tank forecasts.

Czech Republic

The Czech parliament narrowly re-elected right-winger Vaclav Klaus as the central European country's president on Friday, averting a potential crisis in the ruling coalition. Klaus, an outspoken eurosceptic and the architect of Czech post-communist economic reforms, won 141 votes, just above the 140 he needed to beat independent economist Jan Svejnar. The re-election is a boost for Prime Minister Mirek Topolanek, whose position could have been threatened by a failure to push Klaus through after the vote deeply split his ruling coalition. Klaus, 66, was elected to his first term in 2003, replacing former dissident playwright Vaclav Havel, who had ruled since the fall of communism in 1989. Klaus was re-elected in the third round of voting on Friday, after previous three rounds last week failed, prompting feverish talks and pressure from both camps on lawmakers to switch sides.

Romania

Romanian inflation accelerated in January to the fastest pace in 20 months as the weakening leu increased the cost of services priced in euros, including rents and phone bills. The annual rate rose to 7.3 percent, the highest since May 2006, from 6.6 percent in December, the Bucharest-based National Statistics Institute said in an email.
Romania's current-account deficit widened last year as imports increased during the country's first year in the European Union. The deficit widened to 16.87 billion euros ($24.7 billion) from 9.97 billion euros in 2006, the Bucharest-based central bank said in an e-mail. The cumulative deficit widened from 15.29 billion euros at the end of November. The International Monetary Fund and the EU, which Romania joined on Jan. 1, 2007, have warned Romania to rein in its current-account deficit or risk the stability of the local currency as international investors grow reluctant to place money in higher-risk areas amid concern over the U.S. economy.

Russia

Russia's trade surplus widened 1.5 percent in December from the previous month as high global oil prices boosted the value of exports. The surplus increased for a third month to $13.7 billion from $13.5 billion in November, the Moscow-based central bank said on its Web site.

Serbia

Kosovo Albanians declared independence on Sunday, confidently awaiting Western recognition for their state despite the anger its secession provoked in Serbia and Russia's warnings of fresh Balkan unrest. Serbia vowed undying but peaceful resistance to the loss of its cherished southern province. Mass protests were being organised for the coming days. Protesters called "hooligans" by Serb media attacked the U.S. embassy in Belgrade, where riot police drove them back. Three hand-grenades were tossed in the Serb-dominated north of Kosovo, one of them exploding in a U.N. car park. By Balkan standards, it was a relatively peaceful start to the latest drama in the tortuous break-up of Serb-dominated Yugoslavia that began nearly two decades ago. But the diplomatic repercussions were just beginning. The U.N. Security Council met in emergency session at the request of Serbian ally Russia, but it reached no agreement on what to do about Kosovo and did nothing to change Western backing for secession. "We, the democratically elected leaders of our people, hereby declare Kosovo to be an independent and sovereign state. This declaration reflects the will of our people," said Kosovo's Prime Minister Hashim Thaci.

Ukraine

Ukraine paid the first $100 million to clear its debt for Russian natural gas supplies, President Viktor Yushchenko said. Russian state-controlled fuel monopoly OAO Gazprom said on Feb. 7 that NAK Naftogaz Ukrainy, Ukraine's state-owned gas and oil company, owed it $1.5 billion for gas deliveries since November. Yushchenko and his Russian counterpart Vladimir Putin agreed on Feb. 12 that Ukraine will start to repay its debt, averting a halt in supply. Yushchenko confirmed the debt was owned by Ukraine in an e-mailed statement.

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Published on  Mon, Feb 18 2008, 12:39 GMT

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