Emerging and Frontier Markets: Economic and Geopolitical Analysis

[LeveragedBuyout]

Not good news from the perspective of attracting MNCs. Those commercial rent rates are ridiculous.

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http://online.wsj.com/articles/myanmar-property-has-room-to-rise-says-yomas-pun-1414654111

Myanmar Property Has Room to Rise, Says Pun
Yoma’s Serge Pun Says Property Supply Over Next Five Years Won’t Meet Demand

ENLARGE
Serge Pun, chairman of Yoma Strategic Holdings. BLOOMBERG NEWS

By SHIBANI MAHTANI And JAKE MAXWELL WATTS
Oct. 30, 2014 3:28 a.m. ET

Real estate in Yangon, where office rental prices are already the highest in Southeast Asia, will become even more expensive regardless of political movements in the country, says Myanmar businessman Serge Pun.

“It’s very hard to come to the conclusion that there is a bubble,” Mr. Pun said in an interview Wednesday on the sidelines of the Forbes Global CEO Conference in Singapore. “The amount of supply that is going to come on stream in the next five years based on all the pipeline projects is far insufficient from what the basic demand is,” he said.

According to real-estate research firm Colliers International, Yangon has the highest average monthly rent for prime office space in the Southeast Asian region with an average rent of US$87 per square meter in the first quarter of this year, 21% higher than in Singapore, which claims second place.

The firm predicts that this rental figure will rise by more than 25% in the next two years. Only four buildings in Yangon are considered to have quality offices, Colliers adds, with buildings of international standard “nonexistent” in the city, thus inflating prices there and keeping demand for higher-quality office spaces high when new developments come online in the next few years.

Most Yangon buildings look dated, with slow lifts and few upgrades to facilities in decades. For the same price, companies can buy office space in Singapore’s premium Marina Bay Sands district overlooking the central business district and bay.

Mr. Pun’s Yoma Strategic Holdings Ltd. , which reaps 90% of its revenue from real estate, said Wednesday net profit had more than doubled to US$16.5 million in the fiscal second quarter, year-over-year, largely due to growth driven by its Star City project, a 10-million square foot condominium project in Yangon complete with golf courses and waterfront restaurants. The company, which is one of Myanmar’s largest conglomerates, saw its share price rise 6.4% in Singapore on the news Wednesday, although they had fallen back by 1.5% Thursday afternoon.

“The results appear very good,” said Roy Chen, an analyst covering Yoma Strategic at CIMB Research in Singapore. “But if you check into the financials and the other statements then there are some significant one-off gains,” he said, such as foreign-exchange gains and reclassification of assets. Mr. Chen said that demand for Yoma’s assets in Star City and other developments appears strong.

“I do not see any risk” in the market, said Mr. Pun, who argues that proposed legislation to allow former Myanmar citizens to buy property and the development of a local banking sector will likely drive demand in the future, despite a regulatory environment that is still riddled with red tape. At present, only Myanmar citizens can own land, although foreigners can rent property.

Stringent laws on land ownership are a hurdle for foreign firms looking to enter Myanmar’s property market, a problem that affects even the biggest local developers—including Mr. Pun.

For example, little progress has been made on Yoma’s signature Landmark project, a 10-acre, US$350 million development including the historic former Burma Railways headquarters in downtown Yangon, because of bureaucratic delays in extending Yoma’s lease of the land there.

While upbeat on Myanmar real estate in general, Mr. Pun said it is unrealistic to assume that the market will perform well indefinitely. “Bubble territory could happen very quickly, very easily if we’re not careful,” he warned. Mr. Pun said he has experienced crashes before, but said ordinary Burmese might find a downturn hard to comprehend. “Try telling that to a Burmese who has never seen real-estate prices come down for 25 years,” he said.

 

[alaungphaya]

Not good news from the perspective of attracting MNCs. Those commercial rent rates are ridiculous.

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http://online.wsj.com/articles/myanmar-property-has-room-to-rise-says-yomas-pun-1414654111

Myanmar Property Has Room to Rise, Says Pun
Yoma’s Serge Pun Says Property Supply Over Next Five Years Won’t Meet Demand

ENLARGE
Serge Pun, chairman of Yoma Strategic Holdings. BLOOMBERG NEWS

By SHIBANI MAHTANI And JAKE MAXWELL WATTS
Oct. 30, 2014 3:28 a.m. ET

Real estate in Yangon, where office rental prices are already the highest in Southeast Asia, will become even more expensive regardless of political movements in the country, says Myanmar businessman Serge Pun.

“It’s very hard to come to the conclusion that there is a bubble,” Mr. Pun said in an interview Wednesday on the sidelines of the Forbes Global CEO Conference in Singapore. “The amount of supply that is going to come on stream in the next five years based on all the pipeline projects is far insufficient from what the basic demand is,” he said.

According to real-estate research firm Colliers International, Yangon has the highest average monthly rent for prime office space in the Southeast Asian region with an average rent of US$87 per square meter in the first quarter of this year, 21% higher than in Singapore, which claims second place.

The firm predicts that this rental figure will rise by more than 25% in the next two years. Only four buildings in Yangon are considered to have quality offices, Colliers adds, with buildings of international standard “nonexistent” in the city, thus inflating prices there and keeping demand for higher-quality office spaces high when new developments come online in the next few years.

Most Yangon buildings look dated, with slow lifts and few upgrades to facilities in decades. For the same price, companies can buy office space in Singapore’s premium Marina Bay Sands district overlooking the central business district and bay.

Mr. Pun’s Yoma Strategic Holdings Ltd. , which reaps 90% of its revenue from real estate, said Wednesday net profit had more than doubled to US$16.5 million in the fiscal second quarter, year-over-year, largely due to growth driven by its Star City project, a 10-million square foot condominium project in Yangon complete with golf courses and waterfront restaurants. The company, which is one of Myanmar’s largest conglomerates, saw its share price rise 6.4% in Singapore on the news Wednesday, although they had fallen back by 1.5% Thursday afternoon.

“The results appear very good,” said Roy Chen, an analyst covering Yoma Strategic at CIMB Research in Singapore. “But if you check into the financials and the other statements then there are some significant one-off gains,” he said, such as foreign-exchange gains and reclassification of assets. Mr. Chen said that demand for Yoma’s assets in Star City and other developments appears strong.

“I do not see any risk” in the market, said Mr. Pun, who argues that proposed legislation to allow former Myanmar citizens to buy property and the development of a local banking sector will likely drive demand in the future, despite a regulatory environment that is still riddled with red tape. At present, only Myanmar citizens can own land, although foreigners can rent property.

Stringent laws on land ownership are a hurdle for foreign firms looking to enter Myanmar’s property market, a problem that affects even the biggest local developers—including Mr. Pun.

For example, little progress has been made on Yoma’s signature Landmark project, a 10-acre, US$350 million development including the historic former Burma Railways headquarters in downtown Yangon, because of bureaucratic delays in extending Yoma’s lease of the land there.

While upbeat on Myanmar real estate in general, Mr. Pun said it is unrealistic to assume that the market will perform well indefinitely. “Bubble territory could happen very quickly, very easily if we’re not careful,” he warned. Mr. Pun said he has experienced crashes before, but said ordinary Burmese might find a downturn hard to comprehend. “Try telling that to a Burmese who has never seen real-estate prices come down for 25 years,” he said.

That's not even the half of it. Back in 2013, commercial rent actually exceeded New York!!! But that's because of chronic under-supply more than anything. The prices will level out when the new builds are finished. However, it's not helped by the fact that land and property speculation is in a bubble because that's how a lot of shady characters park their money. Personally, I missed the best of the property bubble.

 

[LeveragedBuyout]

http://online.wsj.com/articles/ukra...1514982694200853598304580246733503039638.html

Ukraine’s GDP Fell 5.1% in Third Quarter
Despite Continued Slide, War-Torn Nation’s Economic Decline Was Narrower Than Expected
By
ALEXANDER KOLYANDR
Oct. 30, 2014 3:29 p.m. ET

MOSCOW—Ukraine’s economy continued its rapid slide in the third quarter of 2014, gross domestic product data from the state statistics service showed Thursday.

The war-torn country’s GDP declined by 5.1% in the third quarter compared with a year ago, as the hryvnia and industrial production declined amid a war in the eastern part of the country, and the ensuing military spending failed to mitigate the overall decline.

The economy shrank 4.7% in the second quarter and by 1.1% in the first.

But despite the acceleration of the pace, the decline was narrower than expected, suggesting a respite in the country’s economic decline and even less of a drop for the full year than the government expected.

“Higher frequency indicators had suggested some stabilization in the macro, as the conflict in Donbas moved to a different level—lower intensity,” said Timothy Ash, an analyst at Standard Bank in London, adding that the full-year decline may be smaller than the 10% expected by the government.

The statistics service didn’t provide the breakdown of the sectors, but economists say military expenditures should have constituted a sizable chunk of the GDP.

“The second quarter showed the only thing growing in Ukraine was the military expenditure paid from the budget. I am certain this is also the case in the third quarter,” said Dmitri Petrov, an emerging-markets analyst from Nomura bank.

Ukraine government forces have been fighting pro-Russian rebels in the east of the country since early spring.

Kiev and the West have repeatedly accused Russia of supplying the insurgents with arms, ammunition and equipment, and of providing them with technical and logistical assistance, facilitating the arrival of Russian mercenaries, and of directly using its regular army units in the combat. Moscow has denied the accusations.

Ukraine’s army met the crisis fully unprepared, as soldiers lacked even basic equipment, and many heavy armory—dating back to the Soviet era—were obsolete and often out of order.

In July, Kiev said it would almost double its military spending in 2014 from the past year to 54.3 billion hryvnia ($4.19 billion). A month later, Ukraine’s newly elected president, Petro Poroshenko, said the country will spend $3 billion on re-equipping the army after an “exhausting” campaign against pro-Russian rebels.

However, in other sectors Ukraine’s economy shows hardly any growth, as the economy contracted 2.1% between July and September from the second quarter adjusted for seasonal factors,

In the past year Kiev lost control over the Crimean peninsula, annexed by Russia in March, and in normal times the areas in the East accounted for up to 10% of the national economy.

The figures are adjusted for Crimea, but statistical information coming from the rebel-controlled areas is patchy at best.

 

[LeveragedBuyout]

China continues to win friends in South America.

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http://online.wsj.com/articles/arge...-million-under-china-currency-swap-1414704667

Argentina Central Bank Borrows $814 Million Under China Currency Swap
Argentina Taps Line as Reserves Quickly Approach Multi-Year Low
By
KEN PARKS
Oct. 30, 2014 5:31 p.m. ET

BUENOS AIRES—Argentina’s central bank tapped a currency swap line with its Chinese counterpart for the first time Thursday, requesting the equivalent of about $814 million at a time when its hard currency reserves are under pressure.

Argentina and China agreed to the 70 billion yuan currency swap during a state visit by Chinese President Xi Jinping in July. Argentine officials say the agreement will make it easier for Chinese companies to invest in Argentina and strengthen the central bank’s depleted reserves.

“Under this agreement, the central bank could request additional currency exchanges equivalent to a maximum of $11 billion,” the bank said in a statement Thursday.

The three-year currency swap allows the two central banks to lend as much as 70 billion yuan and the equivalent in Argentine pesos to each other for up to 12 months. China is Argentina’s No. 2 trade partner after neighboring Brazil.

The yuan can be exchanged for dollars or euros in international financial centers such as Hong Kong, London or Singapore, the central bank said.

President Cristina Kirchner needs all the hard currency she can get her hands on to avoid a major devaluation before she steps down at the end of her second term in December 2015.

The central bank’s reserves are fast approaching a multiyear low at $27.4 billion due to fuel imports, debt payments and capital flight, while dollar inflows have waned due to a drop in soy prices and low foreign investment.

Unable to raise dollars by selling bonds abroad due to a legal dispute with creditors, the Kirchner administration is more dependent than ever on trade for hard currency. Earlier this month, the government struck a deal with exporters that will see them ship $5.7 billion in soy and grains in exchange for authorization to export wheat and flour.

The lack of dollars has aggravated Argentina’s deepest recession since the 2001-02 economic crisis as the government cuts imports to save hard currency. At the same time, Mrs. Kirchner’s reliance on the printing of money to finance spending has spawned one of the highest inflation rates in the world, which some economists put as high as 40%.

Analysts expect the economy will contract 2.2% in 2014 and shrink 1.7% next year, according to a recent survey by FocusEconomics. The 2015 federal budget forecasts 0.5% growth this year.

 

[madooxno9]

China continues to win friends in South America.

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http://online.wsj.com/articles/arge...-million-under-china-currency-swap-1414704667

Argentina Central Bank Borrows $814 Million Under China Currency Swap
Argentina Taps Line as Reserves Quickly Approach Multi-Year Low
.

China is playing this game with some other countries too. Either they will reap a huge pay back or its pure gamble *BUST*.

 

[LeveragedBuyout]

http://blogs.ft.com/beyond-brics/2014/11/03/zimbabwe-ponders-the-struggle-to-industrialise/

Zimbabwe ponders the struggle to industrialise
Tony Hawkins | Nov 03 16:31

As the world’s least industrialised region with a youthful and fast-growing workforce, African policymakers have for decades put industrialization at the top of their development agendas. To date, however, industrialisation policies have failed as the share of manufacturing industry in sub-Saharan GDP has declined over the past 35 years to 10 per cent from 16.5 per cent in 1980.

In two of the few countries that did industrialise rapidly – South Africa and Zimbabwe – manufacturing’s share in GDP has halved from earlier peaks in the 1990s so that today both are striving to reverse this “premature de-industrialisation.” Zimbabwe, though, is hardly typical.Its manufacturing sector took off in the 1960s and 1970s when the government of the then Southern Rhodesia imposed blanket import controls to counter mandatory UN economic sanctions following its unilateral declaration of independence. At the peak of the “sanctions boom” in the mid-1970s, manufacturing accounted for 22 per cent of GDP, reaching 27 per cent at the start of the 1990s.

Today, it is a mere 13 per cent and the sector, which at its peak employed over 200,000 people – one in five of non-farm formal employees – now has 97,000 workers. There is no single explanation for the decline which began after President Robert Mugabe was persuaded to implement an International Monetary Fund (IMF) and World Bank structural adjustment programme in 1991 as a result of which trade was liberalised and manufacturers lost their blanket protection against foreign competition.

Following the demise of apartheid in 1994, potential investors turned to neighbouring South Africa with its more favourable logistics, much larger market and lower unit costs. Mugabe’s fast-track land resettlement programme in 2000 fractured the strong supply linkages between commercial agriculture and manufacturing and as the country slipped into hyperinflation – with inflation running at billions of per cent – industrial production collapsed.

Dollarisation at the start of 2009 stabilised the economy, but industry has grown at 4.5 per cent annually – less than half the rate of GDP growth – and manufacturing output in 2014 is no higher than in the early 1970s. Hardly surprising then that the 2014 survey by the Confederation of Zimbabwe Industries (CZI) released recently paints a bleak picture of industry’s prospects.

It estimates capacity utilization at 36 per cent, down three points from last year, while over a third of respondents to its survey said they are operating at less 50 per cent of capacity. Over half said their businesses were no longer viable – a figure supported by published corporate results showing that half of the firms to report in recent weeks are making losses.

Respondents blame weak domestic demand (28.8 per cent), working capital constraints (26.5 per cent) and competition from imports (14.2 per cent) for this situation. 80 per cent said Zimbabwe’s infrastructure is in a “deplorable” state – so poor that without massive investment it would be impossible to sustain economic growth over the medium term.

At the CZI survey launch, industry minister Mike Bimha revealed that his officials had drawn up a plan for industrial recovery which has since been approved by cabinet. Details have still to be published but in the recent budgets the government has increased import tariffs to protect local manufacturers while simultaneously taking a number of items off the open general licence list, meaning that importers must obtain a licence to bring in goods from abroad.

Protection is unlikely to do the trick. At $14bn, the domestic market is small and forecast to grow at around 3.5 per cent a year for the rest of the decade. In a landlocked country, industry is poorly located geographically with neighbouring South Africa which produces half of the sub-Saharan region’s manufactured goods accounts for 48 per cent of Zimbabwe’s imports.

The investment climate is poor as reflected in the country’s ranking (171st out of 189 countries down from 156th in 2010) in the 2015 World Bank/International Finance Corporation Doing Business report, and a similarly dismal place in the World Economic Forum’s Competitiveness Index.

Improving competitiveness will be a tough ask in a dollarised economy where, according to the IMF, the US dollar was 15 to 25 per cent overvalued earlier this year since when the US unit has appreciated significantly, while with a sliding rand South African imports become more competitive.

Higher import tariffs are an unpromising avenue too for a country which only this week signed to join the proposed 26-nation Tripartite free trade area, made up of the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC), due to launch in 2017.

It is time for policymakers across sub-Saharan Africa, including Zimbabwe to face up to the new realities of industrialisation for late-starters. Some academics and researchers drawing on emerging market experiences believe that the African development path might well bypass manufacturing altogether as countries leapfrog from dependence on agriculture mining or oil to a service-driven economy.

They should take heed of George Magnus who warns that the increased role of industrial supply chains, intangible capital, skills, and services in the structure of advanced manufacturing output is “eroding a past guarantee of successful development” – industrialisation driven by plentiful low-wage labour.

If he is right, policymakers and entrepreneurs need to look for new development models rather than seeking to copy what worked in Asia 20 years ago.

 

[LeveragedBuyout]

http://blogs.ft.com/beyond-brics/2014/11/03/will-ecuadors-success-stand-up-to-cheap-oil/

Will Ecuador’s success stand up to cheap oil?
Andres Schipani | Nov 03 14:41

Of the generation of radical Latin American leaders that have won office in the last decade, Ecuador’s Rafael Correa – perhaps best known internationally for sheltering WikiLeaks founder Julian Assange at his country’s London embassy – is among those with the most successful record. He has reduced poverty, promoted faster economic growth and dramatically improved the infrastructure of Opec’s smallest member. Now, a controversial proposal that would allow him to run for office indefinitely isset to come before congress.

But as the oil price falls, can the president sustain the achievements of his “citizen’s revolution” that have underpinned his popularity?

“The country’s situation is complex, because the government is supported by exorbitant public spending,” says Fernando Santos, a former energy minister and Opec governor. “If there is less oil income it will run out of alternatives.”

Since taking office in 2007 Correa, an economist educated in Belgium and the US, has pushed through an impressive programme of public works partly on the back of a widened tax base and a surge in the price of Ecuador’s oil, which accounts for more than 50 per cent of exports. Public spending was equal to 44 per cent of GDP last year, according to Observatorio de la Política Fiscal, a local watchdog.

While Ecuador’s oil output has increased, its salad days may be at risk. The price of West-Texas Intermediate crude, the benchmark for Ecuador’s oil, has plunged from its high of more than $107 a barrel in June to about $81 today. The country’s Oriente and Napo crude, which trade at a discount because of their lower quality, have also fallen in price.

Correa says his government is used to facing difficulties, pointing to 2009 when the oil price dropped to about $30. “What happens if oil income falls? We’ll reduce investments. It will harm our well being but there won’t be a crisis,” he said recently.

But lower oil prices may still pose a problem for the finances of Ecuador’s dollarised economy. Standard & Poor’s, the ratings agency, said the country had a budget deficit last year equal to 4.7 per cent of GDP. Correa said in September that the 2014 and 2015 budget deficits would be about 5 per cent of GDP, stressing that there was no need to “satanise deficits.”

LatAm Confidential, a Financial Times research publication, wrote last week that the decline in oil prices was “the single most important factor” behind the rise in Ecuador’s fiscal deficit. If oil keeps sliding, Hernán Yellati, an economist at BancTrust, warns that the deficit could widen to as much as 7 per cent of GDP, or $7.1bn, against an initial projection of 4.8 per cent of GDP, or $5bn for 2014. “The government is spending aggressively while oil revenues continue to trend downwards,” he says.

Yellati says his projections would bring Ecuador’s financing needs to some $11bn. But Correa, has proved himself an efficient manager who brought stability to a volatile country. His government has already secured some 74 per cent of its projected financing needs by tapping several creditors, including a gold swap with Goldman Sachs, says BancTrust.

And in June, despite crafting for himself an image of a populist crusader, Correa persuaded yield-hungry investors (who he once called “monsters”) to buy a $2bn bond issue – Ecuardor’s first since it defaulted on debts of $3.2bn in 2008.

Previously, Correa managed to borrow some $9bn from China in exchange for oil, according to Analytica Investments in Quito, of which some $3bn has still to be repaid. Chinese funds have been important for Correa as they financed spending on infrastructure and shored up public accounts. But analysts believe Beijing has begun to rein in some of its overseas lending as its economy slows.

Walter Spurrier, head of Grupo Spurrier, a think-thank in Guayaquil, says Correa will soon turn again to the bond markets. “The key for the government will be to return to the markets next year with a $5bn issuance, he says.”

But investor appetite for risky assets has taken a beating recently. “For several years we enjoyed the bonanza of high oil prices, a depreciated dollar, and strong financing from China,” says Spurrier. “At some point, the pendulum was going to swing in the opposition direction.”

 

[LeveragedBuyout]

Asia Factory Conditions Worsen - Real Time Economics - WSJ

• November 3, 2014, 5:31 AM ET

Asia Factory Conditions Worsen
ByTom Wright

Conditions on Asia’s factory floors largely disappointed in October, with worrying signs that export orders are failing to recover amid a tepid global economy.

Purchasing managers’ indexes, which assess conditions in manufacturing, showed weakness in China, South Korea, Taiwan and Indonesia. There was some improvement in India, but overall the data instilled a somber mood among economists.

The data “offered no signs that the region’s disappointing manufacturing recovery is gaining any momentum,” said Krystal Tan, a Singapore-based economist with Capital Economics, a research firm.

Across the data, there was little good news for exporters. HSBC’s final PMI for China stood at 50.4, up from 50.2 in September. (A reading above 50 signals an expanding manufacturing sector.) But new export business growth was at its slowest since June.

In South Korea, the reading was 48.7, the seventh consecutive month that manufacturers signaled a decline in output. New export orders fell at their fastest pace in over a year.

Korea’s exports have been subdued this year, reflecting lackluster growth in the U.S. and Europe – key engines of demand for Asia’s output of electronics and other products.

China has become a bigger market for goods made in other parts of Asia, and slower growth there has also rippled through the region.

Taiwan, another big electronics exporter, has fared somewhat better. Some economists say that’s because its manufacturers of semiconductors and other electronic components have benefited from the success of Apple Inc.’s iPhone.

Taiwan’s HSBC PMI stood at 52 — in expansion territory. But this was down from 53.3 in September and export orders grew at a weaker rate.

Indonesia’s index fell to 49.2 – a 14-month low – from 50.7 in September. Again, manufacturers complained of decreasing business from abroad.

India was a rare bright spot. The PMI rebounded to 51.6 from 51 in the previous month, driven by better orders from overseas clients. Still, India’s headline number was still down on July and August.

Ms. Tan at Capital Economics pointed to another positive in the data. Input prices, especially in India, have eased significantly, giving central banks in the region room to cut interest rates to support growth.

 

[LeveragedBuyout]

Why Argentines Are Unmoved by Sky-High Inflation - Frontier Markets News - Emerging & Growth Markets - WSJ

• November 3, 2014, 1:47 PM ET

Why Argentines Are Unmoved by Sky-High Inflation
ByTaos Turner
With a handful of exceptions such as Iran and Venezuela, inflation isn’t much of a problem for the world. World Bank data indicate that just a small fraction of the world’s countries suffered double-digit inflation at the end of 2013. That’s because economists mostly agree on what inflation is and how to fight it. They also agree it is bad and should be fought.

Though a little inflation can be good in some situations, economists generally consider high inflation a dangerous threat to economic stability. But while most of the world has learned inflation’s painful lessons, Argentina seems to have ignored them, over and over again. This seems to be true in Argentina again today and it is made clear in research by economist Luis Secco.

Secco, who runs Perspectiv@s Económicas, a Buenos Aires-based consulting firm, studied the average monthly inflation rate in Argentina since the country returned to democracy in 1983. He then took that rate and annualized it to show what it would look like if it lasted a full year under recent central bank presidents.

The result, highlighted in the graph below, shows that high inflation has reigned for most of the past few decades. For the sake of clarity, our graph covers only the past two-and-a-half decades. Just before the span of this chart, though, average monthly inflation hit a staggering annualized rate of more than 109,000% before plunging to a relatively benign 332% in the second quarter of the following year. The actual annual inflation rate varied during the terms of Argentina’s central bank president and this is not reflected in our chart. You can see Secco’s original chart here.

Most of Argentina’s many central bank presidents have seemed helpless to rein inflation in. In fact, with some rare exceptions, Argentina’s governments and central bank presidents have treated the problem ineffectually or even permissively, as if it were an innocuous nuisance.

Triple and quadruple-digit hyperinflation raged in the 1988 and 1990 but Argentina obliterated it by tying the peso 1-to-1 to the U.S. dollar in a currency plan known as “convertibility.” That brought a decade of price stability in the 1990s but it came crashing to collapse in 2002 after Argentina devalued the peso, raising fears of a return to inflationary chaos.

That didn’t happen and prices rose only moderately until 2007, when, bizarrely, Argentina’s government started pretending its burgeoning high inflation didn’t exist. While it soon became obvious that prices were jumping, government officials claimed that people who said otherwise were mendacious coup-mongers.

At one point, a few years ago, one official said the government couldn’t address the issue openly because Argentines weren’t psychologically prepared to deal with it. The government even filed criminal charges against economists who publicly questioned official data. Yet while the government played down inflation, it still pushed supermarkets and other retailers to “voluntarily” freeze prices on certain goods. Predictably, such accords had little long-term effect.

For years, the government said inflation totaled around 10% while economists and provincial governments said it was two to three times higher. The International Monetary Fund even censured Argentina and opened the door to sanctions if it didn’t get its statistical act together.

What crisis? Argentine President Cristina Kirchner’s government admits higher inflation but claims price controls are an effective remedy.
Agence France-Presse/Getty Images
Nowadays, things are a little different. The government admits to higher double-digit inflation and touts the success—or what it sees as the success—of a program that caps prices on hundreds of goods from powered garlic to ultra-thin condoms. Consumers can even use a smartphone app to scan prices and file complaints if retailers don’t stock eligible products.

Nonetheless, inflation is roaring and thought to be around 40% annually. It’s an old problem for Argentines. But in some ways it is more of an inconvenience than the macroeconomic nightmare it might be in other countries.

Argentines have become so accustomed to high inflation they’ve developed a kind of psychological immunity to it. They been there, done that. It doesn’t scare them. What might cause people to panic in other countries causes crisis-callused Argentines to yawn.

And that may be part of the problem. Like the proverbial frog in the pot of boiling water, Argentine governments and central bank presidents—even some ordinary Argentines—don’t feel the need to jump out and turn down the heat. They’re comfortable with things as is, which means, perhaps, that the water could keep boiling for years to come.

 

[LeveragedBuyout]

Tunisia Treads Cautiously Over Energy Reform in Postrevolution Recovery-Carnegie Middle East Center

Tunisia Treads Cautiously Over Energy Reform in Postrevolution Recovery
Source: Getty
Carole NakhleOP-ED OCTOBER 29, 2014GEOPOLITICAL INFORMATION SERVICE

Tunisia opened a new chapter in the history of the Arab world. Its transition after its President Zine El Abidine Ben Ali was toppled and fled the country in January 2011 is being watched closely by the international community. Tunisia remains in the grip of political instability and its economic recovery is frail. The transition will need many years to be completed and it will require a strong government to keep the coherence of the country during such a challenging period. Tunisia’s economy is also affected by the unfavorable conditions in the European Union and neighboring countries such as Libya. The government has shown dedication to implement painful reforms to strengthen the economy and improve the investment climate. A starting point has been the gradual removal of energy subsidies. The government also adopted a National Energy Dialogue in an attempt to engage Tunisians in determining their country’s energy future. It is also keen to encourage investment in shale resources but opposition from civil societies is notable. Continuous, transparent and comprehensive dialogue will remain a key pillar for the success of these reforms.


The ability of Tunisia to transition from 23 years of control under President Ben Ali to a well-functioning society and robust economy post Ben Ali has been watched closely by many people across the world. A success will prove that the revolution was worth it.


Tunisia is a small yet powerful country: it opened a new chapter in the history of the Arab world. The country initiated the wave of the Arab Spring which saw several dictators toppled – from President Zine El Abidine Ben Ali in Tunisia in January 2011, to the fall of Egypt’s President Hosni Mubarak in February 2011 in Egypt and the ousting of Libya’s President Muammar Gaddafi in October 2011.
The ability of Tunisia to transition from 23 years of control under President Ben Ali to a well-functioning society and robust economy post-Ben Ali has been watched closely by many across the world. Success will prove that the revolution was worth it.

Tunisia, however, remains in the grip of political instability and its economic recovery remains frail. It would have been simplistic to expect a rosier outcome. As acting Prime Minister Mehdi Jomaa said, the Tunisian economy needs at least three more years of painful reforms to revive its growth.
Many experts believe this is optimistic. It will require a strong government to maintain the coherence of the country during such a challenging, lengthy period.

The Tunisians are proud that they started the ‘Arab Spring’ but some are increasingly nostalgic for ‘the good old days’, as they suffer the burden of transition.

THE REVOLUTION
Before the revolution, Tunisia was seen as the most stable Arab country. Some analysts argued it could become a ‘North African Singapore’. The country’s GDP was nearly twice that of Morocco, and Tunisia came 40th in the world on Global Competitiveness Index 2009–2010 rankings and the most competitive economy in Africa.

TUNISIA ENERGY

• Tunisia is the smallest nation on the North African coast, with a population of almost 11 million
• Unemployment among young graduates remains high at 34 percent or one out of three
• Electricity makes up 73 percent of domestic gas consumption
• The main foreign companies operating in Tunisia are the UK’s BG Group, Italy’s ENI, and Austria’s OMV
• The main national oil and gas companies are: Entreprise Tunisienne d’Activites Petrolieres (ETAP), responsible for the exploitation and trade of hydrocarbons; Societe Tunisienne d’Electricite et de Gaz (STEG), the exclusive distributor of gas; and Societe Tunisienne des Industries de Raffinage, a state-owned oil refinery that also trades refined oil
• Price subsidies on basic food, oil products, electricity, and transport approximate 5 percent of GDP
• Tunisia is committed to be part of the DESERTEC ‘super-grid’ transmitting solar and wind energy from North Africa and the Middle East to Europe
• The Trans-Mediterranean (Transmed) is a 2,475 kilometer-long natural gas pipeline built in 1983 to transport natural gas from Algeria to Italy via Tunisia and Sicily. In lieu of transit fees, Tunisia receives natural gas as a royalty

Today, the Tunisian economy is registering modest growth. GDP was 2.8 percent in 2013 compared with 3.6 percent in 2010, as the agricultural and the oil and gas sectors have declined while manufacturing stagnated. Tunisia was pushed down on the global competitiveness scale, scoring 87 in 2013. Tunisia’s 15.3 percent unemployment rate, while declining, remains above the prerevolution level of 13 percent.

However, to conclude that the Tunisians were better off during Ben Ali’s dictatorship is simplistic. Before the revolution, Tunisia sat near the bottom of social freedom lists. When President Ben Ali allowed the nation’s first multiparty elections in 1999, he claimed more than 99 percent of the presidential vote, while maintaining monopoly over business despite some economic reforms.
Notwithstanding an overall positive assessment in its 2010 report, the World Bank warned about the Tunisian economy’s inability to generate sufficient jobs to employ the growing labor force, with young and educated individuals increasingly hit.

EUROPEAN TRADING PARTNERS
The economic slowdown is not only linked to domestic conditions. A study by the International Monetary Fund (IMF) in 2010 concluded that Tunisia’s annual growth rate was increasingly synchronized with the growth rate of its main European trading partners.

Tunisia’s economy is highly dependent on the European Union (EU) for exports, tourism receipts, remittances, and Foreign Direct Investment inflows. Europe accounts for around 75 percent of Tunisia’s total exports and around 85 percent of total remittances and tourism receipts. When the economic recession hit the EU in 2008, the Tunisian economy suffered after experiencing growth rates of more than six percent in 2007. The country has also suffered from the unrest in Libya, which is a substantial market for, and employer of, Tunisians.

Supported by the international community, the Tunisian government has embarked on a number of policy reforms, including reducing energy subsidies and improving the investment climate, in an attempt to support faster economic recovery. The implementation of these measures, continues to be hampered by political volatility.

WASTEFUL CONSUMPTION
Energy subsidies weigh heavily on the government budget. Their cost tripled from an average of 0.9 percent of GDP before 2010 to 2.8 percent in 2012, mostly benefiting the richest population. According to the IMF, the highest-income households in Tunisia benefit almost 40 times more from energy subsidies than those on the lowest-income.

The government increased fuel and electricity prices by around eight percent over the last two years, with a view to gradually phasing out subsidies.

The reduction in energy subsidies not only eases the fiscal burden but also helps to reduce wasteful consumption and improves energy efficiency – the latter being another essential target of the new energy agenda.

In 2013, the government launched the National Energy Dialogue, where open, public debates have been organised across the country to discuss the future of energy in Tunisia by 2030. This is a positive step.

PRODUCTION DECLINE
The Tunisians are concerned about the shift in the energy balance going from a surplus since 2000 to a deficit, and which is likely to continue as domestic consumption maintains its growth while production declines, thereby increasing the country’s dependence on imports.

The government wants to establish a more diversified energy mix especially by enhancing the contribution of renewable energy. The dominance of oil in the primary energy mix has been eroded, from 71 percent in 1990 to 45 percent in 2011. Natural gas has gradually crowded out oil to become the new dominant fuel; its share in the primary energy mix increased from 28 percent to 55 percent over the same period.

In 2013, 98 percent of Tunisia’s electricity generation came from fossil-fueled power stations, with hydroelectric and wind sources supplying only two percent of total generation. The government aims to raise the share of renewable energy to 30 percent of electricity by 2030.

Another important target the government is focusing on is the development of national hydrocarbon resources, both conventional and unconventional, with the help of international oil and gas companies.

CORPORATE LANDSCAPE
It is true that Tunisia is a relatively small oil and gas producer and unlike many Arab countries, its economy is diversified; its reliance on oil is limited as sectors such as agriculture, tourism and manufacturing, play equally, if not more, important roles.

But, in the oil and gas sector, Tunisia has a diverse corporate landscape, with 60 companies actively operating in exploration. Before the revolution, Tunisia was seen as an attractive area for oil and gas investment despite its limited potential. Between 2008 and 2010, Tunisia awarded the most exploration blocks in North Africa. Post revolution, investment has suffered from political instability, delays in getting oil and gas development plans approved, and demands for greater public say. Still, for British multinational oil and gas company BG Group—Tunisia’s largest gas producer—for instance, the country is a more reliable place than Egypt with respect to paying its bills on time.

Oil production has been steadily declining from its peak of 120,000 barrels per day (bl/d) in the mid-1980s to 60,000bl/d in 2013.

Oil production has been steadily declining from its peak in the mid-1980s (Source: Energy Information Administration, 2014).

Gas production reached 66 billion cubic feet (bcf) in 2012, satisfying around 50 percent of domestic demand; the rest is imported from Algeria.

UNCONVENTIONAL RESOURCES
Tunisia hopes to reverse its production declines and attract new investment by encouraging exploration of unconventional resources, which dwarf its conventional potential.

According to the Energy Information Administration (EIA), Tunisia’s proved oil reserves are approximately 425 Million Barrels (Mbls), compared with 1,500 Mbls of technically recoverable shale oil resources. Similarly, proved gas reserves are only two trillion cubic feet (tcf) compared with 23 tcf of shale gas resources.

Gas production met around 50 percent of domestic demand in 2012, the difference imported from Algeria (Source: EIA, 2014).

Since Shell expressed interest in exploring Tunisia’s shale resources, opposition has been fierce. The main concerns are over water scarcity and environmental impact, in addition to the absence of tailored legislation and regulations which take into consideration the specific features of shale oil and gas.

Despite existing criticism, the government announced it was considering the offers of different companies which want to drill for shale gas. The Anglo–Dutch multinational Shell is committed to drilling four wells.

SHALE POTENTIAL
The evaluation of Tunisia’s shale oil and gas potential is at a very early stage. There is no doubt that if the country’s shale potential is proven, the economic contribution will be significant. However, it is premature to engage in such forecasts. The success or failure of shale development in Tunisia, like in any other country, will depend on a combination of factors: the fiscal terms, planning procedures, environmental regulations, water management processes, local support, service sector availability and proven geology.

Open dialogue between potential investors and concerned communities, in addition to building local capacity, are therefore essential steps for investors to obtain the social licence to drill. An improvement in the oil and gas investment climate will have a positive spillover in other sectors of the economy.

The government has shown commitment to pursuing its economic and social reform agenda. As expected, it will continue to face many obstacles. But the commitment to transparency will remain an important remedy to lowering, and even removing, those obstacles. The Tunisians have already expressed their tiredness of corruption, opacity and monopoly in the management of the country.

 

[LeveragedBuyout]

Russia’s Economic Woes Are Hitting More of Its Neighbors, the IMF Says - Real Time Economics - WSJ

• 

• November 3, 2014, 11:00 PM ET

Russia’s Economic Woes Are Hitting More of Its Neighbors, the IMF Says
ByIan Talley
Russia’s sanctions-fueled economic slowdown is sapping growth in the Central Asian and the Caucasus satellite nations that rely on their neighbor, the International Monetary Fund said in its latest regional outlook.

The IMF cut its 2015 growth forecast for the region to 5.6%, down 0.8 percentage point from its last estimate in May.

“Risks are tilted to the downside,” the IMF said. “In particular, a deeper or more protracted Russian slowdown could further weaken remittances, exports, and investment.”

Russia is a key trading partner, financier and remittance source for countries such as Kazakhstan, Uzbekistan, Georgia and the Kyrgyz Republic.

Russia’s sanctions battle with the West over Ukraine has scared off investors and sent the ruble into a nosedive. Combined with falling investment levels and plummeting oil prices, the former Soviet nation’s economy is now stalling.

Russia’s woes are bleeding into the surrounding countries, slashing investment into the region and undercutting cash flows that migrant workers send back to their home countries. The depreciating ruble is also feeding inflation pressures in some of the region’s economies.

Europe’s funk and China’s growth challenges also could overshadow the region’s prospects.

“A protracted period of slower growth in other trading partners, particularly Europe or China, would also affect external demand,” the IMF said.

 

[alaungphaya]

Tide may be turning as earnings start to recover - FTAdviser.com
Tide may be turning as earnings start to recover
Investors should look beyond the all-encompassing emerging markets label to find new opportunities.
By Scott Berg | Published 12:10 | 0 comments


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Global equity investors are unlikely to lump such diverse economies as the US, Australia, Japan, Germany, Italy, or other European countries into one basket.

Yet many investors have often viewed emerging markets as a homogeneous asset class, in spite of the substantial economic, political, and geographic differences.


In the six years preceding the global financial crisis, the MSCI Emerging Markets index had a 29 per cent annualised return, in dollar terms, compared with almost 20 per cent for global developed markets.

Remarkably, only two emerging markets had annualised returns below 20 per cent, with 17 of the 25 markets in the index posting annualised gains exceeding 30 per cent.

In contrast, in the subsequent six-year period, emerging markets had an annualised loss of 0.9 per cent, compared with 3 per cent for developed markets. Only half of the emerging markets managed positive returns.

However, the tide may be turning this year, with investors showing more selectivity after last year’s broad, indiscriminate sell-off.

India and Indonesia, spurred by hopes new political leadership will bring renewed economic growth, and the Philippines gained more than 20 per cent in the first half. Meanwhile, several other markets – including Russia, China, Chile, and Mexico – continued to struggle.

Importantly, the market’s tendency to lump emerging markets together creates a great opportunity. While corporate earnings growth in aggregate in the emerging world has slowed since the peak in 2011, what seems to be overlooked is that this was largely driven by Latin America, the most materials-intensive part of the emerging world. At the same time, earnings in emerging Asia reached an all-time high last year.

In fact, emerging market earnings overall have fully recovered from levels preceding the global financial crisis, along with those in the US. Earnings in Europe and Japan remain well below pre-crisis levels.

Valuations have generally moved up from the trough reached last year, but there are still parts of the emerging world where negative sentiment has driven valuations to levels out of sync with the superior fundamentals and return potential.

There are particular opportunities in markets such as India, Indonesia, the Philippines, Turkey, Peru and Mexico. There are also positive frontier markets, including Nigeria, Vietnam and Myanmar.

For all the gnashing of teeth about India last year, it has grown at a 5 per cent rate in the past two years.

The country has a young population, low GDP per capita, tremendous upcoming growth in the labour force, rising urbanisation and middle class, as well as dynamic new growth sectors.

Its significantly under-built infrastructure also poses both a challenge and opportunity.

The stars are also aligned in the well-run economy of the Philippines, which has a balance of payments surplus and moderate inflation.

Indonesia has some materials and energy exposure, but not nearly on the magnitude of Brazil and South Africa. With demographics, infrastructure development and low GDP per capita in its favour – the economy should grow at a 5-6 per cent rate, or potentially even greater. The country is moving in the right direction and new political leadership could be a catalyst.

Turkey was labelled as one of the ‘fragile five’ in 2013, but the policy steps the country implemented last year have been handsomely rewarded this year. The country has a robust, long-term economic outlook, with very favourable demographics.

While there is near-term political uncertainty, valuations should rerate higher once it is resolved.

Scott Berg is portfolio manager of the T. Rowe Price Global Growth Equity fund

 

[alaungphaya]

Where’s the evidence that land grabs are good for economic progress? | Jonathan Glennie | Global development | The Guardian
Where’s the evidence that land grabs are good for economic progress?
We can’t be sure that moving people off their land to develop it for export industries will benefit resource-rich countries

Andean women and children thresh grain in Collana Baja, near Cuzco, Peru. Photograph: Tomas Munita/AP
The Rights and Resources Initiative (RRI) and the Munden Project, have not been resting on their laurels since delivering an important study last year on the business costs associated with land grabs.

They have turned their focus on 73,000 mining, agricultural and logging concessions, in eight countries but mostly in Peru and Colombia, and found that almost all of them are inhabited (93-99%, depending on the data source).

This blows out of the water any idea that such projects are victimless; extrapolate this globally and many millions of the world’s poorest people face existential threats to house and home.

So what to do?

The first thing is to get the facts straight on the development benefits of such projects. Obviously, the driving factor behind them is profit – there is big money to be made, as a recent report by Grain, a research group based in Barcelona, makes depressingly clear.

Powerful companies and their supporters, including governments and a host of international experts, argue that such concessions bring jobs, taxes and multiplier effects for the countries concerned, and even for the people at risk of displacement.

Clearly, claims by companies should not be taken at face value. The incentives for them to make that case are obvious – the kind of thing Naomi Klein might bluntly dismiss as “essentially a cover story for greed”.

But the views of (often democratically elected) governments and experienced researchers should be listened to. Are remote communities holding back the development of their countries by resisting money-making opportunities, as bureaucrats often claim? Should they move aside for the good of the whole population?

Answers to such questions are complicated, but the policy response turns out to be surprisingly simple. And somewhat refreshingly we can turn to the aid debate’s great antagonists, Jeff Sachs and Bill Easterly, for a common line.

It was Sachs who worked up and popularised (in a 1995 study and since) the theory of a resource curse, whereby, paradoxically, countries with an abundance of natural resources have weak economic growth.

Such easy sources of revenue means there is often little incentive to promote efficient and productive economic development. In addition, resource wealth is a major cause of conflict, which is perhaps the biggest barrier to economic development.

This counterintuitive, but very well substantiated, analysis is seldom heeded by governments keen to earn exports dollars fast, often for good reasons. And on issues as complex as economic growth it is hard to make reliable generalisations. But that, in fact, is also the point, and it is where Sachs’s nemesis comes in.

Easterly’s latest book, the Tyranny of Experts, has many flaws, but one thing he does well is to profoundly question the confidence of economists and politicians about what does or does not promote growth.

The reality is that, on balance, we know very little about what causes growth. Commodity exports play a part, of course, but we do not know precisely what part, and swift growth today can easily be reversed tomorrow, with much the same policy regime in place.

This is where Easterly’s second point comes in. The logical conclusion of this uncertainty about the development impacts of particular policies or projects is that the presumption should be against undermining people’s rights. It is a kind of precautionary principle for human rights.

If we are sure that moving people off their land to develop it for export industries is going to be beneficial for the country, then there is at least a case that such upheaval for some is the unfortunate price to be paid for the progress of many.

But if we are far from certain about the national benefits even in terms of economic growth, let alone growth equitable and sustainable, then there can be no justification for such devastating decisions. The only circumstances in which development could take place, under this logic, would be with the full consent of the communities affected.

And this is the area that the Munden Project/RRI report homes in on, identifying late communication and a failure to follow the principle of free, prior and informed consent as prevalent across the examples studied.

The case for moving people from their land is further undermined by the tactics used by most companies – if it were really such a good option, why are so many deals done in the shadows?

So, despite the complicated debates about what spurs growth and development, the policy response to these cases is simple – stand by the local communities and ensure their rights are defended.

Not because they have the God-given right to stay in their land forever at the expense of national development. But because there needs to be exceptionally strong evidence of wider positive impacts to justify such disruption to people’s lives. And that evidence does not exist.

 

[LeveragedBuyout]

I am re-evaluating and significantly reducing the level and scope of posts I make on PDF. No more 10 posts per day; I would rather concentrate on analysis than simple news updates. Consequently, my posts/articles will be far less frequent, and more high-level like the one below. I appreciate the contributions that others have made to keep this thread active.

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I see debt people - EMRE DELİVELİ

I see debt people

There isn’t a huge Halloween tradition in Turkey, and so I celebrated “witches’ holiday,” as we Turks call it, by watching M. Night Shyamalan’s “The Sixth Sense.”

The next day, on the first day of November, I began seeing debt people. You probably think I am seeing them in my dreams. After all, as fellow Hürriyet Daily News columnist Mustafa Sönmez underlined in his Nov. 3 op-ed, data shows that households have lost their appetite for spending on loans.

No, I don’t see them in my dreams, but in my waking hours. They are walking around like regular people. They don’t see each other. They only see what they want to see. They don’t know they’re in debt. How often do I see them? All the time. They’re everywhere.

For example, the cab driver who took me to the airport had an iPhone 6 Plus. He told me he could not buy it in installments with his credit card because of the new law limiting installments, but instead used a personal loan to buy it, as well as a dishwasher for his wife. While credit card debt has plunged, annual growth in consumer loans is still around 14 percent.

When asked about the rise in debt, Economy Tsar Ali Babacan and Finance Minister Mehmet “Nominal” Şimşek point out that at 55.2 percent, the ratio of household liabilities to personal income is still higher in the U.S. and Europe. Well, those countries had a crisis precisely because of high debt levels.

Moreover, this argument ignores the rapid rise in debt. The ratio of liabilities to income was 4.7 percent in 2002.

Similarly, officials point out the low ratio of non-performing loans to total loans. They are right, but that only tells you that non-performing loans rose at the same rate as overall loans. In fact, outstanding non-performing and past-due loans have been rising rapidly. According to the Banks Association of Turkey, nearly 150,000 people are behind on their personal loan or credit card payments as of August, 56 percent higher than the same month last year. Even though there are less new loans, consumers are feeling the constraint of their existing loans.

Besides, while still way below its recent peak in 2009, the NPL ratio has been creeping up in the last few months, which can also been seen from the fact that the NPL is rising much faster than total loans.

As growth settles to a lower plateau in the absence of ample external financing and unemployment starts creeping up as a result, it will probably continue to rise.

It is not only individuals. Corporations have increased their debt in recent years. In fact, one of the biggest themes of the Turkish economy during the last decade is that government debt has been replaced by private sector debt.

I am particularly concerned about the rise in external, and more generally foreign currency, debt of corporations, especially in sectors like construction, where most of the revenues are in Turkish Liras. The balance sheets of these companies would take a huge hit if the lira were to depreciate significantly.

But a more detailed analysis will have to wait – as I need to leave now to buy myself an iPhone 6 Plus and an iPad Air 2. After all, I just got an SMS from my bank offering attractive rates for personal loans – which I plan to use. I hope I don’t run into debt people.

November/07/2014

 

[alaungphaya]

I am re-evaluating and significantly reducing the level and scope of posts I make on PDF. No more 10 posts per day; I would rather concentrate on analysis than simple news updates. Consequently, my posts/articles will be far less frequent, and more high-level like the one below. I appreciate the contributions that others have made to keep this thread active.

---

I see debt people - EMRE DELİVELİ

I see debt people

There isn’t a huge Halloween tradition in Turkey, and so I celebrated “witches’ holiday,” as we Turks call it, by watching M. Night Shyamalan’s “The Sixth Sense.”

The next day, on the first day of November, I began seeing debt people. You probably think I am seeing them in my dreams. After all, as fellow Hürriyet Daily News columnist Mustafa Sönmez underlined in his Nov. 3 op-ed, data shows that households have lost their appetite for spending on loans.

No, I don’t see them in my dreams, but in my waking hours. They are walking around like regular people. They don’t see each other. They only see what they want to see. They don’t know they’re in debt. How often do I see them? All the time. They’re everywhere.

For example, the cab driver who took me to the airport had an iPhone 6 Plus. He told me he could not buy it in installments with his credit card because of the new law limiting installments, but instead used a personal loan to buy it, as well as a dishwasher for his wife. While credit card debt has plunged, annual growth in consumer loans is still around 14 percent.

View attachment 147302

When asked about the rise in debt, Economy Tsar Ali Babacan and Finance Minister Mehmet “Nominal” Şimşek point out that at 55.2 percent, the ratio of household liabilities to personal income is still higher in the U.S. and Europe. Well, those countries had a crisis precisely because of high debt levels.

View attachment 147303

Moreover, this argument ignores the rapid rise in debt. The ratio of liabilities to income was 4.7 percent in 2002.

Similarly, officials point out the low ratio of non-performing loans to total loans. They are right, but that only tells you that non-performing loans rose at the same rate as overall loans. In fact, outstanding non-performing and past-due loans have been rising rapidly. According to the Banks Association of Turkey, nearly 150,000 people are behind on their personal loan or credit card payments as of August, 56 percent higher than the same month last year. Even though there are less new loans, consumers are feeling the constraint of their existing loans.

View attachment 147304

Besides, while still way below its recent peak in 2009, the NPL ratio has been creeping up in the last few months, which can also been seen from the fact that the NPL is rising much faster than total loans.

As growth settles to a lower plateau in the absence of ample external financing and unemployment starts creeping up as a result, it will probably continue to rise.

View attachment 147305

It is not only individuals. Corporations have increased their debt in recent years. In fact, one of the biggest themes of the Turkish economy during the last decade is that government debt has been replaced by private sector debt.

View attachment 147306

I am particularly concerned about the rise in external, and more generally foreign currency, debt of corporations, especially in sectors like construction, where most of the revenues are in Turkish Liras. The balance sheets of these companies would take a huge hit if the lira were to depreciate significantly.

But a more detailed analysis will have to wait – as I need to leave now to buy myself an iPhone 6 Plus and an iPad Air 2. After all, I just got an SMS from my bank offering attractive rates for personal loans – which I plan to use. I hope I don’t run into debt people.

November/07/2014

Personal debt often denominated in foreign currency is a major problem in the developing world. Do you think it is advantageous to the US if this debt is dollar denominated?

Personal debt often denominated in foreign currency is a major problem in the developing world. Do you think it is advantageous to the US if this debt is dollar denominated?