The EBRD’s Convoluted Conversion Convocation
The EBRD annual meeting in Poland approached its 25th anniversary under the cloud of the Ukraine crisis eroding post-Soviet Union regional economic momentum as new client Egypt also appeared to badly backtrack on the eve of elections enshrining military rule in democratic guise. Companies in host Warsaw reported lower exports with its neighbors’ troubles as forecast 3 percent GDP growth this year will depend on consumption and retail credit with the central bank’s rate stance on hold. The stock market was flat in MSCI terms through April as BNP’s local unit floated shares while government bonds remained overbid with auctions to fade in the coming months on private pension fund takeover. The zloty firmed at 4 to the euro as joining the single-currency bloc again appeared on the agenda for diplomatic and monetary benefits, with an end-decade target tabled. Hungarian equities were down almost 10 percent on another 10 basis point benchmark dip to 2.5 percent as deflation loomed after Prime Minister Orban sauntered to repeat victory with the far-right Jobbick party a strong runner-up. European monitors slammed the process as unfair in district and media coverage while actual voting was conducted without incident. Fidesz’s two-thirds parliamentary control could bolster longtime stands against foreign business which have slashed investment to post-World War II levels as allies are appointed to the constitutional council and central bank. International relations could be further roiled by revanchist tendencies toward a “greater Hungary” including nearby minority populations as unchecked power invites comparisons with Russian President Putin’s westward push. Czech stocks have led the trio as the exchange rate floor policy was indefinitely extended with the 2 percent inflation goal in sight and the central budget in surplus. Both Euro-zone exports and domestic demand have picked up to lift GDP growth toward 3 percent and the Finance Minister has pledged long-overdue capital markets reforms including cross-border integration.
Romania has been a draw as a sovereign bond meeting 2014 needs was oversubscribed at a record 3.5 percent yield on the back of ratings upgrades and compliance with EU fiscal deficit criteria. Banks have increased local currency loans 5 percent and Templeton has renewed its contract as a state asset fund manager with further stakes due for divestment under the precautionary IMF arrangement. Serbian securities were also boosted as Prime Minister Vucic won elections decisively and will appoint a technocrat cabinet with a mandate to resurrect Fund ties and redress huge budget and current account imbalances and double-digit unemployment. Exchange rate intervention will likely be discouraged under the program, as Egypt’s 7 to the dollar informal peg also bent in advance of its presidential poll with presumptive victor and former general Al-Sisi declaring no place for the Muslim Brotherhood or radical subsidy removal. Gulf countries have not signaled their subsequent assistance intentions as a policy wall stays in place with other development sponsors.
