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Addis Ababa’s Development Declaration Decathlon

2015 August 12 by

The third UN Financing for Development forum in Ethiopia’s capital produced a 40-page “outcome document” for consideration in the September General Assembly covering private capital themes, as the dense prose masked a more accepting but still skeptical tone 15 years after the “multi-stakeholder consultative process” was launched. Official aid and redefinition of the original Millennium anti-poverty goals with a 2015 deadline remained a core focus, and the environment was also in the spotlight in the run-up to the Paris carbon emission treaty conference at year-end. It calculated a $1 trillion developing country infrastructure funding gap and called for a global forum to coordinate public sector and commercial efforts which would include new players like China’s AIIB and the African Development Bank’s “50” fund. Domestic tax mobilization was a major thrust with an appeal for information-sharing between revenue authorities, including in offshore centers, and crackdowns on money laundering and illicit outflows. On financial regulation the participants urged risk-based approaches across the spectrum from microcredit to international banking, and steps toward universal customer access and literacy. They noted remittance charges remain steep and should fall to no more than 5 percent by 2030.

On domestic capital markets long-term bonds and insurance are lacking and the declaration committed to stronger supervision and clearing and settlement. Regional markets are an option to obtain scale, and at the opposite extreme poorer countries have yet to establish securities activity. Foreign portfolio investors have taken large shares in local debt markets over the past decade, and cross-border cooperation can help manage volatility. Pension and sovereign wealth funds in both advanced and emerging economies can increase infrastructure investment so that the clean energy annual $100 billion tab by 2020 is met. Trade finance is often unavailable and the WTO and its members should expand guarantee, factoring and small business programs.

Debt sustainability remains an issue as the last candidates for HIPC relief are approved by bilateral and multilateral lenders. A central registry on sovereign restructurings is overdue and the UNCTAD principles on responsible treatment have not been widely honored. The Paris Club has launched a dialogue with private creditors, and the IMF and UN are both exploring new burden-sharing formulas, but the signatories are “concerned” over bond holdouts. The pari passu and collective auction clause changes recently adopted in prospectus language are helpful but developing country borrowers may require facilities for international legal assistance to redress the capacity and resource imbalances in negotiations. Special provisions should also be triggered in the event of natural disasters, including disease outbreaks as in West Africa, and distress could be worked out in debt for health swaps and similar mechanisms that were popular in previous crises.

IMF governance reform remains a priority despite the refusal of the US Congress to pass 2010 quota reallocation proposals, and emerging market “voice” is also under-represented at the Basel Committee and as counterpoint to the main global rating agencies. The standard-setters should focus attention on ways to hedge and avoid economic damage associated with commodity price swings. Shadow banking may pose systemic risks in an unmonitored chain of credit and securities transactions, and upcoming UN sessions should try to illuminate data and knowledge gaps, the Addis Ababa roundup adds.

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The IMF’s Sustainable Solutions Snub

2015 February 13 by

The IMF put the US Congress on notice that the 2010 quota reform agreed by all other members may be renegotiated by mid-year with continued lack of ratification, potentially endangering Washington’s 15 percent plus controlling share. The move followed a fiery speech by Managing Director Lagarde urging overdue “political action” on this issue and climate change and income inequality challenges. The original deal would keep the US allotment at 17 percent and advance China, Brazil and India several places mainly at the expense of Europe relinquishing 3 percent. After passage of the previous end-2014 deadline country representatives have begun to explore alternatives to change voting power and double the Fund’s firepower which could involve another G-20 summit or interim Treasury Department endorsement pending later legislative approval. The delicate diplomacy comes amid the task of expanding and possibly doubling last year’s $15 billion plus rescue package for Ukraine, with a mission and Treasury Secretary Lew just visiting Kiev. This version will be the first test of guidelines circulated last year, incorporating lesson from Greece, on exceptional access and “reprofiling” private debt through automatic maturity extension or stipulating outright reduction if the burden is no longer sustainable. The new Finance Minister, a US-trained investment banker, introduced the restructuring option at the World Economic Forum in Davos and appointed Lazard as an adviser. The sovereign rating had been sliced to CCC- in December with both near-term bonds and CDS trading in deep distress with double-digit spreads. Optimistic scenarios calculate the recovery value at 60 cents/dollar, with Franklin Templeton the biggest international holder loser alongside Pimco and BlackRock. Local bond issuance has continued with $2 billion equivalent placed in January for gas payment, as official figures will soon establish public debt/GDP over 60 percent entitling Russia to call in its 2013 $3 billion buy triggering other Eurobond cross-default clauses. Reserves are down to $7.5 billion by the last tally and industrial output fell 10 percent in 2014. Corporate borrowers have already defaulted and several banks have been liquidated amid large-scale system recapitalization needs, with Russia’s VTB already moving to support its local unit. The EBRD predicts financial collapse in months without tangible actions in banking, energy, investment and anti-corruption despite the new government’s enactment of legal and policy changes on paper.

The Fund’s updated approach recognizes that re-profiling would be defined as a credit event by ISDA and trigger swap payouts as the sovereign rating temporarily enters “selective default.” The later swap could end that designation and enable eventual market return but will depend on creditor acceptance of the staff debt sustainability analysis. Fund operations in Cyprus and Jamaica in 2013 involved maturity extensions, and the framework would first establish commercial exclusion by assessing a series of bond primary and secondary, ownership, duration and rollover indicators. Contagion cases could entail special circumstances but this finding could engender panic if asset managers are not consulted and believe in the stakes as well as the unserviceable stock, the document asserts.

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IMF Quota Legislation’s Private Sector Breakout

2014 December 4 by

Four years after initial agreement at a G-20 summit and a year after another IMF quota review was due, the Obama Administration and Congress have yet to pass a bill enshrining minor funding and voting changes as the US, the original architect still with an over 15 percent controlling share, stands alone in refusal. The technical provisions are obscure, but basically enshrine an earlier post-2008 enlargement of Fund capacity to $950 billion and an incremental 5 percent power, and pledge transfer to big emerging economies mainly at the expense of European countries with their separate pre-EU representation. The package was delayed in Capitol Hill submission and House Republicans in particular, whose majority will be reinforced in the next Congress along with Senate takeover, have complained of lack of outreach and rationale and added reservations about lending policies in Europe and elsewhere to the bill’s specifics. The Treasury Department has been the lead agency actor and White House lobbyists have joined the effort, while outside advocacy crested earlier this year on an attempt to insert the clause in emergency Ukraine appropriations with a letter-writing campaign organized by the Bretton Wood Committee. It brought hundreds of signatures from former officials and interested professionals, along with a plea on behalf of former Cabinet heavyweights dating back decades, but the private banking and capital market community was not mobilized distinctly through its national trade associations or local presence in swing congressional districts. These financial sector practitioners have already staked future business and security on developing and frontier economies, and could aid adoption of the US-instigated Fund reforms by placing them in context and acting to monitor progress and broader issues at lawmaker request. Their dedicated participation could help clarify esoteric details and serve as a supplemental policy check for Washington-backed international lender direction.

The 2010 Seoul deal doubled quotas and increased emerging market control to over 40 percent in the immediate aftermath of post-crisis expansion, when representatives were already ascending to senior management ranks and the countries had offered Fund provisional credit lines as global worry centered on the US and Europe. Most directors will now be elected instead of appointed, and the Europeans have relinquished board seats. The proposal drew on previous appropriations and requested no new money, but the Congressional Budget Office assigned a $5 billion and later a $300 million contingent cost without elaboration to meet federal guidelines. Even that modest amount may be overstated since the US’s liquid claim has never been in default and the Fund has over $100 billion in precautionary balances and gold reserves. The higher contributions would enable access to a multiple of the sum as in Ukraine’s recent case promoted by President Obama. More controversially Greece before then obtained exceptional limits angering Washington and developing country shareholders alike, and the waiver has since been revisited with private sector debt reduction a key issue in both instances.  As big demands continue from other regions including the Middle East and Africa, BRICS members awaiting action are pursuing their own alternatives for mutual support with the launch this year both of a joint development bank and currency reserve as well as China’s pan-Asia infrastructure lender. Along with the Bretton Woods Committee which was founded to back the international financial institutions on the Hill, the expertise and views of members from the Institute for International Finance, Emerging Market Traders Association, Bankers Association for Foreign Trade, US Chamber of Commerce and similar bodies could assist in improving the reform climate from the basic 2010 commitment through the subsequent range of priority Fund considerations and operations in a next session bid with analysis and events to refresh the stale quota debate.

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Financial Sector Assessments’ Disputed Formula

2014 October 8 by

The IMF and World Bank prior to the annual meetings offered a third review of the 15-year old joint financial sector assessment program which noted strengthening since it was incorporated into Article IV surveillance in 2010 but also wide scope for improvement in gauging cross-border and bank-nonbank risks. Since the 2008 crisis three areas have been highlighted: overall vulnerability, stability policy and prudential supervision in practice and safety nets through the prism of balance sheet stress testing and international codes observance. A formal screening framework was introduced and 90 percent of country participants were satisfied with general coverage. Contingency scenarios always apply to banking but have expanded to insurance and solvency, liquidity and contagion are measured. Techniques were refined in a staff manual but underlying data are not always available or reliable for full exercises, especially outside the 30 designated “systemic” members, the Fund reports. Important operational and fraud threats are not considered and outward channels are rarely addressed alongside foreign credit and capital inflows. Targeted macro-prudential controls are new tools and are harder to benchmark than the traditional BIS banking, IOSCO securities and IAIS insurance principles. The Financial Stability Board enshrined by the G-20 in the wake of the crash has launched its own voluntary testing aimed at sixty countries, which tends to overlap and “fatigue” local counterparts. As an alternative under the FSAP process they can choose individual stability and development modules in view of priorities and mutual resource constraints. A Bank-Fund Liaison Committee of senior executives coordinates the content and effort including complementary technical assistance. One-third of recommendations are completely followed and 90 percent are published, with emerging and low-income economies often demurring. A rough regression indicates findings can affect markets especially bank valuations, but diminishing downloads over time suggest brief “shelf life.” They are mainly bilateral but regional reviews were conducted for the EU, Central and West Africa CFA Franc zones, and the East Caribbean Currency Union. The recent annual average output has been 15 FSAPs, with the individual cost at $1 million. For the most advanced global centers expenses are double, while they are half for non-systemic developing nations. This fiscal year work was presented for Kazakhstan, Jamaica, Lebanon and the East African Community, but poor economies typically lack current and integrated analysis and troubleshooting, and occasional technical missions cannot substitute the Fund laments. Along with adding more flexibility to the core product cost limits and sharing could free resources from the major country undertakings for potential redeployment, it proposes.

Separately the Asia Bond Market Initiative likewise marking 15 years outlined its latest quarter progress and statistics until end-June. Local currency instruments outstanding were up slightly to $8 trillion, with $5 trillion from China as Vietnam grew the fastest. The ten markets’ size is 60 percent of GDP, and the government-corporate split is 60-40. Maturities have concentrated at the 1-3 year shorter end as thus far solid foreign holdings may soon transform with liquidity change, according to the Asian Development Bank.

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The World Bank’s Speed Bump Signal

2014 June 26 by

The World Bank’s half-year Global Economic Prospects update described a “bumpy start” which will keep global growth under 3 percent as developing countries register below 5 percent expansion for 2014 for the third time in a row annually. The latter’s flat performance should be succeeded with medium term 5.5 percent results more in line with potential as high-income import demand offsets tighter monetary conditions. Supply-side bottlenecks hurt most emerging market regions and East Asia’s average growth will level to 7 percent by 2016 as Sub-Sahara Africa’s settles at 5 percent. Latin America and Europe output will climb only 2 percent this year as the former is often operating at full capacity and Russia-Ukraine trade and investment battles stymie that continent. South Asia and MENA in contrast should show surges as India realizes infrastructure reforms and Iran and Iraq export oil and Egypt and Jordan overcome conflict. Short-term risks are “less pressing “ according to the publication as depreciations and interest rate hikes in key vulnerable economies have tackled current account deficits and rapid credit extension, although inflation and payments imbalances remain high in places like Brazil and Turkey. It posits that Ukraine escalation could deliver business and consumer confidence blows amounting to 1 percent of developing world GDP.  As monetary policy normalizes through mid-decade fiscal deterioration may also warrant attention as post-crisis debt levels are up 10 percent in half the emerging market universe. Non-performing loans are a main risk in Europe and Central and South Asia as domestic and foreign debt servicing costs rise. Adjustments to boost competitiveness and productivity must again assume priority after the “firefighting and demand management” phase of recovery. China, Mexico, the Philippines and Colombia are among a group with “ambitious agendas” and China’s transformation is especially crucial with its influence on Asia and commodity exports. Developing country industrial production up 3.5 percent in Q1 was just half the past decade’s pace with the Chinese slump most notable but Indonesia, South Africa, Peru and others also affected. PMIs have since strengthened but the trend toward “cyclical deceleration” persists, the Bank believes. Capital flows have rebounded with modest exchange rate damage since last May compared to previous episodes, as benchmark index bond yields are 1.5 percent lower and most equity markets have fully recouped mid-2013 losses.

Global credit easing and yield appetite have fostered repair even as the commodities complex splits between firm energy prices and falling metals and agriculture. Copper’s plunge did not seem to harm demand for Zambia’s April debt market return at an 8.5 percent yield as it also considered a new IMF program to restore fiscal probity. Kenya soon after completed its long-planned debut placement at lower cost despite farm export reliance and tourism warnings associated with a spate of terrorist incidents. The Finance Minister had to postpone the issue until repayment cleanup from a previous scandal was ensured in a repeat operation.

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The World Bank’s Untidy Portfolio Cleansing

2014 February 6 by

The World Bank’s flagship Global Economic Prospects publication predicted a developing world growth uptick to almost 5.5 percent this year, but attributed the better worldwide 3 percent outlook to high-income countries while also postulating a months-long “disorderly” post-tapering private capital flow 50 percent drop that presages a modest 4 percent of GDP level though mid-decade. The US with ten quarters of expansion has the “most advanced” recovery, while the Eurozone’s has just turned positive and Japan’s will depend on structural reform after fiscal and monetary injections. Emerging market growth is 2 percent below the “unsustainable” pre-crisis boom and Asia will be flat at 7 percent, and Europe, Latin America and the Middle East will be in the 3-3.5 percent range. Sub-Sahara Africa will come in around 5 percent despite lower commodity prices due to domestic demand and infrastructure investment, according to the report. Under a scenario of sharp global interest rate rises current account deficit and rapid credit growth countries would be most at risk, although the projected 5 percent pickup in trade aided by the WTO’s December facilitation accord could be a “tailwind” in the opposite direction. From 2010-13 bond and equity and FDI flows were the main contributors to a 6 percent of GDP total as European banks in particular slashed project and syndicated lending as the fourth component. Since last May the non-FDI categories are off by half exerting “significant pressure” on middle-income economy currencies, asset values and foreign reserves. A push and pull regression model isolating domestic and international factors since 2009 calculates their respective influence at 40 percent and 60 percent , with quantitative easing itself explaining a 15 percent swing. A calm normalization path foresees benchmark instrument rates up 50 basis points by 2015 in the US, Europe and Japan, but last summer sudden Treasury jump at double that spread shakes the benign future assumption, the agency cautions. Initial overshooting is common based on historical experience as volatility measures can also move several standard deviations before reverting to a norm.

 The separate regions have distinct weaknesses including high credit expansion in Asia and external debt-GDP ratios in Europe posing exchange rate and rollover risks. Latin America also has large short-term obligations, as political instability stalks the Middle East and reserve deterioration is widespread in Africa. The policy response to lagging capital inflows can be absorbed with currency flexibility, but potential “disruption” could justify spot and swap intervention as well as temporary access and prudential controls. Confidence may ultimately turn on a pro-active agenda for deepening private savings and financial markets at home, and advancing original G-20 commitments on monetary system cooperation and modernization. As a new Fed Chair takes over in Washington signaling further tapering which can trigger spillover the Congress again refused to pass the IMF’s 2010 quota increase involving no concrete additional appropriation with disorder reigning.

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Doing Business’ Tempered Regulatory Template

2013 November 13 by

Despite expert panel recommendations to change it methodology and Chinese government objections in particular to the lack of macroeconomic context, the World Bank forged ahead with the 11th edition of its flagship Doing Business reference under the same presentation format supplemented by extensive case studies to illustrate best practice. It finds that only one-quarter of 190 countries covered have basic corporate governance rules for conflict of interest and that credit bureaus and modern collateral registries are often absent. In bankruptcy, the average loan recovery rate is 35 percent, and court cases can take years. All regions are closest to the “frontier” of good performance on business startup and furthest away on insolvency handling among the ten areas ranked. In emerging markets, Europe has converged with the high-income OECD, while Sub-Sahara Africa is worst in half the categories. Asia and Latin America are in between and comparable except when it comes to paying taxes, and Middle East results are “diverse” with poor marks in credit access. Libya, Myanmar and South Sudan were added to the list this year, and face the task of updating decades-old laws from the colonial era and learning private company procedures. The authors find that big and small governments fare about equally, but that countries with larger female formal workforce participation outperform. Almost 100 economies have one-stop shops for firm registrations amounting to 3 million in 2012, and this year around 250 reforms were adopted across the universe for a post-crisis accelerated pace.  Two-thirds of African authorities completed changes, versus just 40 percent for MENA “partly due to political turmoil,” according to the document. Russia and Ukraine were top improvers, as the latter simplified construction permit processing and VAT collection, and added new customs and liquidation provisions. After a decade Moscow planners unveiled a fresh municipal building regime. Rwanda and Guatemala continued their recent active records with land and utility record strides, and the Philippines expanded on-line tax filing.

The US was among half a dozen laggards with no advances the past five years, with others like Bolivia and Iraq in conflict or promoting greater state control. The “champions” by region include China, Colombia and Poland and Georgia has been a small-country leader and has just elected a business-friendly president backed by the billionaire former prime minister. The report points out those scores are positively correlated with other benchmark human development and anti-corruption indices from the UN and Transparency International. It concludes that regardless of commodity price and interest rate influences, these norms are “largely homemade” in driving competitiveness and fairness. In an aid openness ranking released simultaneously by a watchdog coalition, the World Bank itself got only a “good” behind the UK bilateral agency’s “very good,” while USAID and the Treasury were “fair.” The Bank’s IFC arm, the IMF, EBRD and the State Department were next to the bottom with “poor” as data and policies undid tracking.

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The World Bank’s Sole Solutions Sop

2013 October 30 by

New World Bank President Kim won member endorsement for his one-stop group knowledge and advisory strategy to end poverty in two decades through “ transformational” public and private sector partnerships. The reorganization builds on previous blueprints and will entail overhead and staff reductions and regional alignments of Bank, IFC and MIGA efforts. It encourages lending and technical assistance innovation that will be measured against quantitative metrics and qualitative surveys while encouraging “historic risk-taking” within the boundaries of economic, social and environmental sustainability. The post-2015 Millennium Development Goal period will continue to work with governments, the UN and other bilateral and multilateral donors, as well as with business and advocacy organizations. The shift intends to harness the central forces of developing country growth and private capital which move increasingly South-South but still bypass poorer nations and large populations in middle-income economies. Banking and securities markets are now “critical” for company fundraising and infrastructure as demand spikes for sophisticated pension and insurance products along with basic financial services for an estimated 2.5 billion citizens without access according to the latest data. Fragile states pose dire physical and health security problems with conflict typically exacerbating disease, illiteracy and malnutrition. Climate change is a common global threat which may invite collective technology response in the same way that inter-connectivity has introduced fresh anti-corruption and transparency channels, the document asserts. The Bank’s “value proposition” lies in 200 field offices, its 60-year track record, and AAA credit rating but improvement is needed on cross-cutting multi-sector approaches and the separate arms with different mandates often lack joint purpose and project cooperation. Clients criticize lengthy administrative and approval delays, and the depth and relevance of industry and policy expertise in comparison with peer providers. The IBRD and IDA facilities handle distinct commercial and concessional borrowers, and the IFC and MIGA are known respectively for financial markets and political risk focus which engage direct and portfolio investors. Occasionally the units have collaborated well as in East Africa’s Efficient Securities Market Program which has cut bond issuance processing time by 75 percent in Kenya and Tanzania and trained 2000 participants.

Future unified operations will include shared country diagnostic and monitoring reports and a permanent regional evaluation and implementation mechanism to succeed “ad hoc” attempts.  The partnership range will be formally expanded to “better off” developing nations offering advice and assistance in their own right. Learning will join financial support across multi-disciplinary priority issues such as green energy, gender and infrastructure, and for fee-based transactions the aim will be cost-recovery either on a stand-alone basis or with trust fund partial coverage to promote savings and fairer competition with outside consultants. Annual meeting attendees described the reform agenda as the most urgent since the Wolfensohn Presidency’s Comprehensive Development Framework, where the intellectual and bureaucratic stream was later diluted by internal lethargy and swamped by external currency crises.

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The IMF’s Magnified Mini-Stress Test

2013 October 25 by

The IMF’s biannual Global Financial Stability Report checkup charted increased emerging market risk with the “mini stress test” since May from a combination of external monetary shocks and internal economic policy doubts culminating in fierce fund outflows.  Portfolio investment after soaring the past decade past $1 trillion into bonds in particular may be an “ebbing tide,” due to crowded positions and declining liquidity, the review believes. So-called “crossover” money from global sources is now skittish about duration exposure, and offshore banks have slashed dealer activity due to capital and regulatory constraints with local counterparts unable to fill the gap. Two dozen debut frontier sovereign issuers were counted in recent years with the buyer base mainly long-term institutions, and the trend has yet to be challenged by a sustained asset class selloff which may dent appetite. Corporate credit quality likewise is worse with higher leverage ratios in Asia and Latin America and record post-crisis defaults over $20 billion in 2012. Chinese external debt is prominent in the category as rapid shadow banking growth at home remains worrisome with lack of disclosure and oversight and close mainstream system ties. Trust loans have doubled the past year as disintermediation reduced the traditional share to just over half of total credit. For other big markets like Brazil, India and Turkey perceptions faded over the summer of “good fundamentals and fiscal prudence” before the Federal Reserve’s status quo quantitative easing unblocked channels in September. Central banks should allow exchange rate depreciation short of “disorderly adjustment” and steer public and private sector balance sheets to avoid currency and time mismatches. Conventional rate hikes can combat inflation pressure in places like Indonesia which also face structural commodity bottlenecks, according to the Fund. On the Japanese experience it adds that the twin aims of massive government bond purchase and 2 percent inflation could promote high-yield developing country diversion above previous $70 billion-range annual peaks, with a distinct Mexican peso grab already underway.

Over the period sovereign debt restructurings proceeded in Europe and the Caribbean addressed by the IIF’s latest evaluation of principles conformance from its 2004 code agreed between senior commercial and official representatives. A voluntary buyback in Greece after the unprecedented haircut was followed by a maturity extension swap in Cyprus, where capital controls remain in effect. Five years after their collapse in Iceland, the two surviving banks with non-resident obligations are still in negotiations as exchange restrictions are also in place there. Belize, Grenada, Jamaica and St. Kitts and Nevis all embarked on workouts in line with the standards, with private creditor committees, IMF involvement, and bond collective action clauses. Different techniques and claims were covered, and with information sharing and good-faith dialogue they were concluded “fairly quickly.” The outcomes reflected further strides in data transparency and investor relations across 35 economies ranked in the group’s scorecard, with Colombia, Nigeria and Russia amplifying the picture.  

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MIGA’s Guarded Guarantee Gallop

2013 October 2 by

The World Bank’s MIGA political risk insurance arm increased guarantees almost $3 billion the latest fiscal year, bringing the total portfolio to quadruple the amount, as post-crisis focus on Europe’s financial sector turned to capital market support for frontier country infrastructure projects. The agency extended its commercial debt product coverage to include state-owned firms without explicit government backing, in keeping with a development mandate beyond traditional Berne Union private capacity. Over half of business was in Sub-Sahara Africa and oil and gas was the second industry line, with a $150 million facility joining with OPIC for Apache Corporation operations in Egypt. Power investment also featured in two other major deals for a combined $650 million in Angola and Bangladesh where HSBC was the chief lender. One-third of outstanding exposure has been reinsured and no expropriation claims were submitted in FY 2013. On a net basis Central Europe takes a large portion with Croatia, Russia, Serbia and Ukraine each with 5 percent-plus shares, while the biggest African risks are in Ghana and Cote d’Ivoire. The group is also responsible for underwriting transactions in the West Bank and Gaza under a separate international arrangement. Ukraine’s stock market with a 15 percent MSCI loss through September still owes the IMF $8 billion from the previous lapsed accord as prospects for renewal remain remote. Reserves sank another 5 percent in August on repayment and currency intervention to just over $20 billion as a mini-trade war erupted with Russia with the Kremlin trying to pre-empt an EU customs agreement. Candy imports were banned by Moscow on health concerns and steel shipments encountered delays and extra inspections. President Yanukovych wants to enter Europe’s free trade zone despite his Russian counterpart’s objection to the “suicidal move.” Brussels has first insisted on tariff as well as political and judicial changes, including the possible jail release of opposition party head Tymoshenko. Recession lingers although the corn harvest is up 35 percent putting the country just behind Argentina and Brazil in the world export ranks, with shifts toward Asian and Middle Eastern buyers. Agri-business multinationals have expanded their local presence, with Monsanto just launching a seed production unit, despite slipping global commodity prices.

The chronic budget and current account deficits have worsened this year as the winter natural gas season and the stretch into the next presidential election cycle approach. The central bank is expected to further stiffen rules on foreign exchange surrender and trading as foreign ownership of domestic debt is barely one percent despite double-digit yields. Croatia recently inked an EU partnership as heavy public debt spurred a negative ratings outlook assessment and unemployment touched 20 percent. It will immediately be placed under the excess deficit procedure, but the Finance Minister looks to privatization rather than outside official rescue to mobilize resources. Serbia on the other hand just completed another cabinet reshuffle hoping to regain IMF program access and enlisted former Managing Director Strauss-Kahn as an adviser as both seek image rehabilitation.

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