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Emerging Markets Weekly

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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, 07:56 GMT