The Balkans’ Muddied Splash Specter
After recording flooding in the region which prompted emergency EU aid and a Russian ban on agricultural exports in retaliation for international sanctions, Balkan markets paused for reconsideration as individual dangers mounted. Bulgaria after a June EUR 1.5 billion sovereign issue was hit by domestic bank runs and the government’s resignation following defeat in European Parliament elections. It approached the ECB for rescue aid as the fiscal deficit target was raised to just under the 3 percent of GDP Eurozone threshold. Economic growth will be below 2 percent as Corporate Commercial Bank, one of the victims of social media insolvency rumors, headed for international bond default with creditors demanding that officials who did not counter the attacks honor payments. The stock market there has fallen behind Romania’s 10 percent advance in light of S&P’s investment-grade promotion and JP Morgan’s addition to its local debt index at a tiny weighting. Two foreign euro and dollar placements this year were well-received and fund tracker EPFR has fixed-income inflows over $150 million leading the frontier pack. Privatizations went ahead under the IMF precautionary facility to reduce the budget gap to 2 percent of GDP before November presidential elections on 3 percent projected growth. Croatia on the other hand remains mired in recession despite tapping the Eurobond market in May at a 4 percent yield as the BB sovereign rating was reaffirmed. The foreign currency 75 percent portion of steep public debt drew a warning as talk of an IMF program was rebuffed, as the MSCI Index was off 10 percent through end-July. Serbian shares are down a similar amount as the new coalition tries to reconstitute the lapsed Fund arrangement and the central bank kept the policy rate at 8.5 percent after 100 basis points in consecutive cuts. A budget consolidation plan will soon be resubmitted for approval despite the Finance Minister’s resignation and dubious pension reform prospects, as exchange rate weakness feeds through to 4 percent inflation. The monetary authority pointed to Russian confrontation for ‘negatively impacting” capital and trade flows as bad weather continues to act as a drag.
The Balkan rumblings as they look for backstops echo Ukraine’s plight directly in the firing line as it awaits another Fund installment with output slumping 2.5 percent in the latest quarter. Equities up 35 percent have attempted to recoup last year’s losses but corporate external debt has plunged with the 40 percent currency depreciation and shuttered Eastern coal and steel mines, banks and factories. Farming group Myira missed a $400 million bond payment and seeks a restructuring as instruments controlled by the Akhmetov empire such as DTEK Holdings come under selling pressure with his operations suspended by fighting. Baltic markets have suffered too from their geographic and historic fate as they are major Russian food suppliers while Latvia’s offshore banks are swept into the dual embargo and money laundering vortex.
