Europe’s Full Circle Fund Fealty
As the IMF hailed Greece’s private debt buyback result to reactivate its program contribution and prepared an outline Cyprus deal with troika partners, Central Europe relations returned to the spotlight as financial markets weighed new deal odds. In Romania, a resounding majority victory in parliamentary elections for Prime Minister Ponta’s party sent the MSCI index up 5 percent as his coalition signaled its intent to renegotiate another standby accord on upcoming expiration in March. His stronger position has raised fears of another constitutional confrontation that may attempt to oust the president from a main opposition group, but outcry from Brussels and political activists at home has kept a lid on the tense standoff. The government has argued the lack of alternatives to austerity policy despite near-recession this year and loud protests by labor and farming interests. Foreign positioning in the local debt market is lighter than in neighbors and banks under the auspices of the Vienna Initiative have maintained operation although they have transferred subsidiary support responsibility to local depositors.
In Hungary, by comparison, GDP contraction is 1.5 percent according to the OECD, with 40 percent international ownership of the debt pile. The Orban Administration has dropped measures that alienated the EU and threatened elimination of cohesion aid, but talks with the Fund are in limbo as it claims to be able to access external sovereign markets and repay almost $15 billion in obligations coming due in the first quarter of 2013. It has angered bankers with indefinite extension of the original 3-year special tax on assets, as parents have cut domestic lines 40 percent since 2009 with the current NPL ratio at one-fifth the total by Fitch Ratings’ calculation. Budapest exchange stalwart OTP continues to report mixed results but remains committed to its big network at home and abroad as the index is ahead 15 percent. It outstrips the Czech Republic which is off 10 percent, but lags Poland with a 25 percent gain and three-quarters of overseas needs pre-financed at record low yields for next year despite GDP growth shaved to 2 percent. An IMF contingency facility to backstop reserves is in place as the zloty has swung often in response to Eurozone crisis events as well as fiscal and company developments, the latter featuring a slew of high-profile bankruptcies in the construction sector.
Ukraine was downgraded further into junk territory and has been the worst MSCI frontier performer with a 50 percent loss. The president dismissed his government after his Regions party secured a thin disputed legislative election win, as rumors circulated of a last-ditch effort to align with demands of the long-suspended $15 billion IMF loan, with repayments looming for one-third that amount next year. Foreign exchange curbs have been imposed to safeguard reserves dwindling from the current account deficit and capital flight, as customs union with Russia is a last-resort consideration.
