• Home ::
• Fundamental ::
• Analysis Reports ::
• Emerging Markets Weekly

• Send
• Print
• Add To
• Rss

Emerging Markets Weekly

06556890-4771-4668-8920-7a9c1e436352

0

0

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.

• Download Full Emerging Markets Weekly

Published on  Mon, Jul 7 2008, 08:43 GMT