The Andes’ Anti- Capital Capers
Bolivia’s prospects for an inaugural sovereign bond previewed at the IADB annual meeting were undermined by President Morales’ May Day custom of utility nationalization as Spanish company Red’s operations were commandeered by soldiers following similar action against UK and French multinationals in 2010. His popularity has dipped to new lows and the timing coincides with Argentina’s high-profile oil producer takeover, further consumer and banking sector targeting in Venezuela, and the imposition of dual reserve requirements and additional set-asides on foreign currency loans in Peru. Ecuador too has threatened new moves against privately-owned media after the Correa administration ordered divestures from family-controlled groups. Peru’s central bank had been intervening aggressively to keep the sol/dollar rate around 2.7 drawing on record reserves of $55 billion. 30 percent of deposits are in greenbacks and short-term bonds are majority foreign-held, and limits on overseas credit were extended to longer-maturity 3-year credit under the clampdown. Commodity exports and FDI continue to set highs after mining controversies early in President Humala’s term. Neighboring project developers have entered as North American, European and Asian competitors turn wary, with three Brazilian firms recently investing $8.5 billion in gas and chemical ventures in the poorer south. The government claims they will create 50,000 jobs in line with the pledge that natural resources benefit rural communities. GDP growth is expected at a continent-leading 5.5 percent with inflation within the 1-3 percent band although at the upper reaches as the benchmark rate stays just above 4 percent. Good business and retail sentiment readings will offset continued delay in the high-profile $5 billion Conga scheme which was referred to an international technical review commission after environmental protests. Through April stock market performance aided by the Mila cross-trading facility has exceeded the core 11 percent MSCI result, while external bonds have mirrored regional top-grade levels.
The runaway EMBI climber continues to be Venezuela, where President Chavez was noticeably mute on May Day as he endured another round of cancer treatment amid rumors the Foreign Minister may be his designated successor going into October elections with the opposition candidate only behind 5 points in some opinion surveys. The minimum wage was hiked 30 percent as price controls cap inflation at 25 percent. Banks were instructed to buy special purpose agricultural bonds, and debt issuance beyond the current $20 billion ceiling was authorized to manage the fiscal deficit and exchange rate. The unified currency trading platform only registers $20 million in daily turnover on administrative difficulties and new development partners like South Korea which will finance $10 billion in infrastructure cite it as a bilateral obstacle as dealings seek to diversify from the dollar amid the looming span for a top departure.
