The IIF’s Anxious Anniversary Annals
The Institute for International Finance marked 30years and the retirement of its longtime director at the Tokyo IMF-World Bank sessions as it raised the annual capital flows forecast slightly, with an over $1 trillion showing particularly on improved cross-border debt and Asian direct and portfolio investment prospects. Its conference featured an appearance by US Treasury Secretary Geithner and an annual review of application of its bond restructuring principles to the opposite cases in complexity and size of Greece and Saint Kitts-Nevis, where the leadership assumed an unprecedented creditor steering committee role in the former triggering controversy among the global bank and non-bank membership with diverging interests. The evaluation found that guidelines had been followed although the Greek haircut represented departures with the simultaneous historic developed country and EU regional workout. Prices have since doubled for the defaulted private instruments as the official Troika may disburse an installment delayed since June and extend the program timeline and the ECB signals increased future bond-buying support. A headline bank merger has been resubmitted and the coalition arrangement between the two main parties has held despite persistent violent protests and attacks from populist and far-right rivals. At the IIF an executive search is underway for a successor to former Treasury Undersecretary for International Affairs Dallara, with candidates likely to include recent occupants of that key government position. As with the IMF governance battle emerging market representatives argue that the top post could be drawn from their constituency for the first time among many public and private sector luminaries.
The transition will occur as the Fed’s QE3 and anti-slowdown fiscal and monetary space keep net private capital flows to thirty destinations above $1 trillion, although at 4 percent of GDP half their pre-crisis peak. A study confirms that emerging market mutual fund commitments grow after industrial country central bank asset purchases even as economic expansion will not reach 5 percent for the universe. FDI is the exception with an expected return next year to $535 billion at almost the previous high despite stagnation in top recipient China, with Latin America registering a “remarkable” gain. In other categories equities are more attractive with average P/E ratios around 10 and bank lending stabilized according to the latest quarterly conditions survey. Both sovereign and corporate debt at one-third of total exposure remain buoyant with the latter jumping by half since 2008 and standing at $150 billion in Q3 mostly from Asia. On official flows only traditional bilateral and multilateral sources are collected excluding Chinese and other providers. Sovereign wealth vehicles with $5 trillion in assets may also be missed unless activity is tracked in standard investment data and as they target countries outside the IIF’s roster. The update also notes the developing world’s mounting outward capital heft despite flight tendencies in Russia and elsewhere that seem regular rites.
