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Emerging Markets Weekly

Argentine food stores and gas stations may run short of supplies today as truckers

Wed, Jun 18 2008, 07:08 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Argentina's annual inflation rate rose to 32 percent, according to statistics from the country's provinces, said Alfonso Prat-Gay, a former central bank president. ``The only anti-inflationary policy is the manipulation of the consumer price index,'' Prat-Gay told reporters in a televised interview on C5N television channel.
Argentine food stores and gas stations may run short of supplies today as truckers, blocking highways to protest business lost to a farm strike, shut down the nation's road transport system, industry officials said. Cargo truck drivers are stopping traffic on routes in the agricultural provinces of Buenos Aires, Santa Fe, Cordoba and Entre Rios as they demand the government settle a three-month- old conflict with farmers that has cut shipping and reduced their income. Growers seeking to roll back a new export tax regime have refused to sell newly harvested soybeans and corn. ``The impossibility of moving goods on the country's roads forces us to raise an alarm about the consequences for food businesses,'' the Buenos-Aires based Coordinator of Food Industries said in an e-mail statement.

Brazil

Brazil's economy grew 5.8 percent in the first quarter, the fastest for this period of the year in more than a decade, adding to speculation the central bank will raise interest rates further to curb demand and cool inflation. Growth was fueled by domestic spending. Household consumption rose 6.6 percent in the first quarter from a year ago, the 18th straight quarterly gain, the national statistic agency said in Rio de Janeiro. The last time firstquarter growth topped this year's rate was in 1995.
Brazil's central bankers see signs that inflation is ``diverging'' from their targets and expect consumer prices to rise more than previously forecast in 2008 and 2009. ``The recent behavior of the IPCA price index has been notably less favorable than in the previous quarters,'' policy makers said, according to the minutes of their June 3-4 meeting released on their Web site. ``Inflation is showing signs of diverging from the target trajectory.'' The minutes underscore the bank's concern that the inflation outlook has worsened, suggesting policy makers will raise the overnight lending rate further to cool demand. Inflation jumped to a 16-month high of 5.58 percent in May and has been above the government's 4.5 percent target since January. The central bank last week raised the rate to 12.25 percent from 11.75 percent, the second half-a-percentage-point increase since April.

Chile

Chile's peso decline the most in a month as copper sank and concern increased that the central bankers has lost control of inflation. ``Aversion to emerging market assets is rising across the board but the Chilean central bank has been inconsistent with its messages to the market, and that's affecting investor appetite even more,'' said Flavia Cattan-Naslausky, an interest- rate and currency strategist at Royal Bank of Scotland in Greenwich, Connecticut.

Mexico

Mexican Finance Minister Agustin Carstens urged the central bank to cut its benchmark interest rate, newspaper El Universal reported. Carstens said a difference in opinion between the government of President Felipe Calderon and the central bank about interest rates doesn't jeopardize Mexico's economic stability, the newspaper said. Carstens said the Finance Ministry respects the independence and decisions of the central bank, El Universal reported.

Peru

Peru had a $343 million trade surplus in April, the country's National Statistics Institute said in an e-mailed report. Exports rose 21.3 percent from a year earlier to $2.56 billion. Imports jumped 55 percent to $2.22 billion, the institute said. The surplus narrowed from $678.8 million in the year-ago month.
Peru's central bank unexpectedly raised its benchmark lending rate to 5.75 percent in a bid to control inflation. Only three of the 16 analysts surveyed by Bloomberg forecast the quarter-percentage point increase, while 13 had expected the bank to keep the overnight rate at 5.50 percent. Central bank President Julio Velarde is battling annual inflation that surged from less than 1 percent to 5.39 percent in 12 months, exceeding the bank's target of 3 percent.

Venezuela

Venezuelan President Hugo Chavez, backtracking on a fourth initiative in two weeks, revoked an intelligence law that opposition parties and the Catholic Church said would force citizens to become government informants. Chavez, who revamped the country's intelligence structure by decree last month, said he scrapped the law and will ask the National Assembly to draw up a new proposal. ``Some mistakes were made,'' Chavez said today in comments broadcast by state television. ``You can't obligate others to tell on someone.'' The law, which would have created new intelligence and counterintelligence agencies, prompted street protests last week by opposition parties that said it would give the government too much power.

AFRICA & MIDDLE EAST

Egypt

Egyptian inflation accelerated to a record 19.7 percent in May, putting pressure on the central bank to raise its key interest rates for a fourth time this year. Urban inflation accelerated from 16.4 percent in April, the Cairobased Central Agency for Public Mobilization and Statistics said in a faxed statement. The May inflation rate is the highest since the government began regularly releasing records to the public in July 1998.

Kenya

The successful debut of East Africa's largest initial public offering here on Monday has investors betting on the country's budding investor culture and its recovering economy. The offering, a 25% stake in mobile phone giant Safaricom Ltd., was valued at about $800 million and oversubscribed by about 500%. Initially offered at 5 Kenyan shillings, or about 8 U.S. cents, shares rose to about KES8 on Monday, before closing at KES7. The highly anticipated offering had been postponed after violence erupted in December amid marred elections, leaving over 1,000 people dead and hundreds of thousands scattered in camps across the country. The economy, which had been enjoying a boom as East Africa's hub of stability, screeched to a standstill. Now, with the rival political parties united in a fragile coalition government, Safaricom's success suggests it may be reviving up again.

Nigeria

Nigeria lost an estimated $26.9 billion in oil revenue since the beginning of 2006 because of the crisis in the Niger Delta region, the country's chamber of commerce said. Nigeria lost an average of 500,000 barrels a day of crude oil during 2006 and 2007, and about 550,000 barrels a day since the beginning of this year, the National Association of Chambers of Commerce, Industry, Mines and Agriculture, said in an e-mailed statement from Lagos, the country's commercial capital. Oil production in Nigeria has dropped 20 percent since early 2006 when the militant group Movement for the Emancipation of the Niger Delta, or MEND, began sabotaging the industry in an bid to gain political power and oil wealth for the impoverished area. The chamber wants President Umaru Yar'Adua to resolve the insurgency by sharing oil revenues with the region's inhabitants and state and local governments.

South Africa

South African banking shares dropped for the third day in Johannesburg trading on concern the country's central bank will increase borrowing costs on June 12. Standard Bank Group Ltd., South Africa's biggest lender, fell 2.6 percent to 79.25 rand at 3:27 p.m. local time, the lowest since November 2006. Absa Group Ltd., the country's biggest provider of home loans, declined 5 percent to 82.90 rand, while FirstRand Ltd., South Africa's No. 2 bank, dropped 2.8 percent to 13.78 rand. Old Mutual Plc's Nedbank Ltd. retreated 3 percent to 92.48 rand. The South African Reserve Bank has raised interest rates nine times since June 2006 to quell inflation, which reached an annual 10.4 percent in April. Higher borrowing costs may hurt banks' earnings by weakening demand for loans and increasing the number of people and companies that can't afford to repay existing debt.
The Congress of South African Trade Unions, the country's biggest labor federation, will hold a national strike July 30 to protest against the threat to jobs from electricity rationing and increased power charges. Provincial strikes will begin July 2 and extend through the month, Cosatu said in an e-mailed statement, after lack of investment by state-run generator Eskom Holdings Ltd. and delays in government approval for expansion led to energy shortages.

Uganda

Fitch said that Uganda was considering launching a debut Eurobond issue to fund infrastructure spending, making it the latest emerging African frontier market to consider such a step. Fitch reaffirmed the country's "B" rating on the country with stable outlook, praising its track record of economic stability, growth and single digit inflation coupled with recent debt relief. "The government is ... considering the issue of a debut Eurobond though the size and timing of any issue had yet to be clarified," Fitch said in a statement. It said Uganda had one of the strongest external liquidity positions of sovereigns in the "B" rating category. Fitch estimated real GDP growth averaged 7.6 percent in the five years to 2007, while external debt relief reduced the government's debt burden to 26 percent of gross domestic product. It said chronic power shortages were one of the most significant potential constraints to growth, while investment was also needed in the road network and transport system. It welcomed a recent oil discovery, saying feasibility studies were still under way, and confirmation -- as well as responsible plans for spending oil revenue -- could further benefit the rating.

ASIA

China

China's export growth unexpectedly accelerated in May, easing concern that a strengthening yuan and a slowdown in U.S. demand will trigger an economic slump. Overseas sales rose 28.1 percent from a year earlier, after gaining a revised 21.9 percent in April, the customs bureau said on its Web site. That was more than the 20 percent median estimate of 17 economists surveyed by Bloomberg News. Exports to the U.S. accelerated, withstanding a 10 percent gain in the yuan against the dollar in the year through May. Imports jumped 40 percent because of soaring raw-material costs, supporting the central bank's case that inflation is a bigger threat than weakening global demand.

Indonesia

Indonesia's central bank may raise its policy rate in July for a third consecutive month to slow inflation, Deputy Governor Hartadi Sarwono said. The central bank on June 6 forecast the inflation rate to rise to 12.7 percent this month because of the government's move to raise fuel prices in May. Bank Indonesia raised its policy rate to 8.5 percent on June 5. ``I cannot say whether it's going to be 25 basis points or more,'' Hartadi told reporters. ``It depends on the situation.''

Philippines

Rough rice production in the Philippines, the world's biggest importer, may exceed a government target of 17.3 million tons this year, as the state boosted spending on fertilizer subsidies, an official said. Rough rice production so far this year has already hit the first-half target of 7.1 million tons, Agriculture Undersecretary Jesus Emmanuel Paras said in an e-mailed statement.

Vietnam

Vietnam increased the benchmark interest rate to the highest in Asia to cool the quickest inflation since at least 1992, and will allow the dong to weaken. Governor Nguyen Van Giau will raise the base rate to 14 percent from 12 percent to stabilize the economy from tomorrow, according to a statement on the central bank's Web site. The bank also lowered the dong's reference rate for tomorrow by 2 percent to avoid currency speculation. The rate increase may help restore confidence in the benchmark stock index, which has lost almost 60 percent this year and is the world's worst performer.

EMERGING EUROPE & CIS

Bosnia-Herzegovina

Bosnia's central bank said on Friday it has agreed with the country's two regions that it should play a stronger role in coordinating banking supervision, cooperation and exchange of information. The agreement aims to recognise vulnerabilities in the banking sector, identify potential risks and ensure a quick reaction to crises, the bank said in a statement. The International Monetary Fund and the European Central Bank have long called for the Bosnian central bank to take on the oversight role in the area of payment and settlement systems, as well as in banking supervision. Bosnia is made up of two highly autonomous regions, the Muslim-Croat federation and the Serb Republic. Banking supervision has been fragmented along ethnic lines like most sectors in the Balkan country after the 1992-95 war. The Serb Republic, which retains wide autonomy, has refused to give up any of its authority in the sector. The Muslim-Croat federation, which favours greater centralisation, was in favour of the bank's stronger role.

Hungary

Hungary's central bank may be forced to raise interest rates due to risks to its inflation target and Deputy Governor Ferenc Karvalits said on Wednesday that May inflation data was worse than expected. "Recent developments in commodity prices might exert further pressure on domestic inflation. We cannot rule out that we will need further (monetary) tightening," he told Reuters in an interview. "However, everybody should keep in mind that substantial tightening has happened already and its impacts unfold with a time lag," he said, referring to three rate hikes totalling 100 basis points which have brought rates to 8.5 percent. Karvalits also said inflation figures published on Wednesday were unfavourable as a 7.0 percent headline inflation figure in May, up from 6.6 percent in April, exceeded the bank's and analysts' expectations. "In the domestic front, today's CPI figures are not favourable, they surprised the market and slightly exceeded our expectations, too," he said.

Kazakhstan

Kazakhstan's Economy Ministry said the inflation rate, which reached 19.5 percent in May, the highest since March 2000, may exceed the government's 2008 target as food and fuel prices soar. The prospect of rising food prices and oil at $150 a barrel, coupled with Kazakhstan's dependence on oil imports for refining, means inflation may exceed the target of 11.1 percent by as much as 1.2 percentage points, the ministry said in an emailed statement, without specifying how the target was calculated. The Kazakh government has attempted to curb price growth by limiting wheat, rice and fuel exports.
Kazakhstan, Central Asia's largest oil producer, increased foreign-currency and gold reserves 3.6 percent in May amid record oil prices. Reserves advanced by $752 million to $21.5 billion last month as the National Bank of Kazakhstan bought more dollars, the central bank said on June 2 on its Web site. The former Soviet republic's National Oil Fund grew 3.2 percent in May from a month earlier.

Romania

The European Commission warned Romania on Friday that its lax fiscal policies were bad for its economy and it urged the Black Sea country to cut the budget deficit and embark on structural reforms. The European Union executive said in a policy report on the bloc's newcomer that it risked exceeding the EU's budget deficit ceiling of 3 percent of gross domestic product next year, and macro-economic imbalances were likely to grow. "Coupled with structural reforms, budgetary consolidation will help address the overheating of the economy and promote a more balanced catching up process with the rest of the EU," European Monetary Affairs Commissioner Joaquin Almunia said.

Russia

OAO Gazprom Chief Executive Officer Alexei Miller said Europe risks ``deindustrialization'' if it stops the world's largest natural-gas company from entering retail and distribution markets in member states. State-run Gazprom will coordinate its efforts with like-minded Europeans to convince ``Eurocrats'' not to set ``anti- Gazprom conditions,'' Miller told reporters in Deauville, France. ``Otherwise, not an energy shortage but the deindustrialization of the continent may loom on the horizon.''

Turkey

Turkey's Constitutional Court infringed on the rights of parliament by blocking a law allowing students to wear Islamic-style headscarves, Deputy Prime Minister Cemil Cicek said. Legislators from other parties as well as the governing Justice and Development Party must consider their response to last week's ruling, which undermined the country's democracy by overturning legislation supported by about four-fifths of parliament, Cicek told reporters after a Cabinet meeting in Ankara. The court on June 5 ruled that the measures passed by parliament in February, which would have allowed students to wear headscarves, contravened the constitutional provision that Turkey is a secular state. The court is also considering a separate lawsuit demanding closure of the governing Justice party on the grounds it's anti-secular.
(Sofia News Agency) The prices of donkeys in the Yozgat District in Central Turkey have increased sevenfold as many local people are giving up the use of tractors over the high fuel prices, and substitute them with the beasts of draught. Because of the increased demand the price of one donkey grew from EUR 26 to about EUR 180, the Turkish newspaper Zaman reported. According to the paper, the number of people in Turkey using donkeys instead of tractors had grown twice. The diesel in the country already costs EUR 1,6 per liter.

Ukraine

Ukrainian inflation, the fastest in Europe, will slow because of seasonal declines in food prices and interest rate increases, Economy Minister Bohdan Danylyshyn said. ``Consumer price growth will slow significantly in June, July, August and further,'' said Danylyshyn at a press conference in Kiev. The inflation rate surged to 31.1 percent in May from 30.2 percent in April as global food and energy prices jumped and the government boosted social spending. Consumer prices rose 1.3 percent last month, compared with 3.1 percent in April, according to the state statistics data. The government of Ukraine, which World Bank estimates has almost 3.7 million people living in poverty, pledged to curb inflation to keep the economy stable and boost living standards in the former Soviet republic. The government, which wants to bring the inflation rate below 10 percent, has missed its target in the past four years.

Standard & Poor's cut Ukraine's sovereign ratings, saying the country had failed to tackle rising inflation and was spending too much. It lowered its long-term foreign currency sovereign credit rating on Ukraine to "B+" from "BB-" and long-term local currency rating to "BB-" from "BB", saying the country had failed to counter rising inflation. "The downgrade reflects the failure of authorities to put into place adequate policy measures to counter rising inflation in Ukraine's overheating economy," said Frank Gill, Standard & Poor's credit analyst in a statement. The agency said the country's outlook remain stable but fiscal policy remained highly pro-cyclical with nominal expenditure growth expected to exceed 40 percent during 2008. "Alongside monetary stimulus, expansive spending has contributed to the rapid rise in inflation, which is undermining real income growth and could increase volatility of output," the agency said.

INDUSTRIAL COUNTRIES

Iceland

Iceland's economy suffered its worst quarterly contraction in almost five years at the start of the year, data showed on Thursday, as it headed toward a possible recession. Gross domestic product (GDP) shrank 3.7 percent in the first quarter from the final three months of last year, when it grew 0.3 percent quarter-on-quarter. This marked the biggest quarterly contraction of the economy since the second quarter of 2003, the statistics office said. On an annual basis, GDP growth fell to 1.1 percent in January-March from an unrevised 4.6 percent in the previous quarter, as the economy cooled rapidly from years of red-hot growth. Strong domestic demand and huge investments in metal smelters, tapping Iceland's abundant energy resources, fuelled years of stellar economic growth. But this also stoked inflation and prompted the central bank to raise interest rates to record highs. Concern over Iceland's vulnerability to the global credit crunch has darkened the outlook in recent quarters, while completion of the smelter projects has weighed on investment.

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Published on  Wed, Jun 18 2008, 07:23 GMT

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