Europe

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Turkey’s Serial Siege Sendoffs

2020 October 4 by

The Turkish lira has lost 20% of its value this year and continues to hit all-time lows as inflation remains near 12% and foreign exc

hange reserves dwindle. The economy contracted 9.9% y/y in Q2.  The trade deficit for the first 8 months of the year surged 69% over the same period in 2019. Imports in August alone rose 21% y/y as Turkish citizens went on a gold buying frenzy, searching for an investment that that will hold its value against inflation. Gold has long been a safe haven for Turkish savers at times of economic, market, and political instability. The trade deficit has pressured the perennial current account deficit already suffering from a widening services deficit on lack of tourist receipts due to the pandemic. To fund it and the budget deficit foreign portfolio inflows have dwindled to record lows, w local debt ownership now less than 5%.

Fitch Ratings has warned that Turkish banks’ underlying asset quality will weaken due to the pandemic but noted that reported non-performing loans will be “flattered” by regulatory forbearance and loan growth.  Lending surged in H1 – 16% in FX-adjusted terms, according to the rater – driven by both Treasury-backed Credit Guarantee Fund loans to SMEs (sp) and retail demand post-lockdown.  Banks are also contending with balance sheet risks from FX lending as the lira sinks.  The central bank, meanwhile, has reportedly almost reached its set limit for Treasury funding after earlier doubling the ceiling to 10% of its balance sheet. 

In geopolitics, the European Union is threatening Turkey with sanctions for its “confrontational actions” in the escalating standoff with Greece and Cyprus over hydrocarbon resources in the Eastern Mediterranean.  French President Macron, along with the 6 other EU “Club Med” leaders, met to discuss the growing territorial tensions which have further derailed Turkish-EU relations already strained over its policy in Syria, military intervention in Libya, and jailing of opponents of President Erdogan. Unless negotiations with Athens resume, the EU is likely to decide on sanctions later this month.

 Longtime Turkish analysts and investors agree the intertwined political, economic, financial sector, and currency situation is nearing a breaking point.  Lack of central bank independence to raise rates to protect the currency also weighs on sentiment, with investors staying away while the benchmark rate is 8.5% on 11.8% inflation. Erdogan’s son-in-law, The Treasury and Finance Minister, insists that the government wants to ensure the lira is competitive to boost exports and narrow the current account gap, but inflation and metals imports spiked as a result. Turkey’s growing alienation from EU and NATO allies at the same time the economy and currency are melting down and banking sector stress grows may finally force a government rethink about more conventional stabilization policies. Technocrats were once able to wow banks and fund managers and win their confidence on monetary policy and bank regulation, but such a shift now is in the hand of family leadership and business/political allies.   

The EBRD’s Insitutional Investor Instigations

2020 June 4 by

The EBRD with market research firm IHS Markit updated its member country equity investor survey, with data and findings through mid-2019 after the previous 2017 tabulation. It looked at infrastructure, trading, capitalization and liquidity; corporate governance and transparency; and general political and economic background to assess individual market and regional “attractiveness.” Respondents preferred higher free-float and turnover ratios, and cited weightings in benchmark indices as passive and active managers. The biggest global houses like Black Rock, JP Morgan and Schroders are in all geographies, while others were country and investment-style specialists. Net exposure rose $25 billion over the period to $250 billion through 2200 surveyed firms, with Russia and Turkey at the most inflows while Central Asia had outflows. Central Europe and the Baltic states were the most popular allocation from two-thirds of the sample, and diversification was an overriding theme with exporter listings favored. Low valuations in the Mediterranean exchanges and good dividends in Russia were drivers, and small company “value” players targeted frontier locations. Commodity price swings and sanctions faded as concerns, replaced by worries over labor and anti-corruption backsliding. Over a three-year horizon sentiment was mostly bullish, but Central Asian and Middle East markets were viewed as too remittance dependent and politically charged. Participants predicted solid but not fast GDP growth, and worried about capital flight from Turkey and elsewhere. To boost liquidity they call for more privatization of state-owned enterprises and cross-border bourse ties. Custody, settlement, tax, and regulatory barriers persist, and portfolio balancing to bonds is limited with thin secondary trading. Consumer, financial and telecoms stocks were broadly embraced, among standout local stories like tourism in Croatia. ESG factors were a priority with an emphasis on business reputation and sustainability, with notable leaders in unlikely markets Egypt, Georgia and Slovenia. Internal practice such as board independence was considered equally with outside avoidance of child labor and energy waste.

In the EBRD universe strategic investors dominate with almost 60% ownership, followed by institutions (25%) and insiders (15%). Of the institutional share, Europe domicile is over half, with North America at 7.5% and the Middle East 2%. Vanguard from the US and the Qatar Investment Authority lead, both with allocations of almost $15 billion. “Aggressive growth” was the top approach for 40% of assets and almost $200 billion was actively managed. Over two-thirds of respondents were “buy and hold,” and the most diversified included Eaton Vance, Aberdeen Standard, and East Capital. Asian and Moroccan banks also featured, and private equity dual portfolios were headed by Russia’s Prosperity Capital. The update was completed long before the coronavirus arrival, with global commodity, value chain, remittance and tourism shares at greatest risk. Fiscal and monetary support is aimed at retail and strategic business, and the EBRD launched its own trade finance facility as member countries separately inundated the IMF and World Bank with emergency health and debt rescheduling requests. Reflecting the new program emphasis, economic research has expanded to measure such overlooked investor considerations as medical spending and physician availability. According to an April table about half the near 40 nations have low or moderate scores in these categories that may further sap strength against the disease.

Turkey’s Pesky Pump-Priming Primer

2020 April 9 by

Turkish shares briefly roared into the new year to leave behind 2019’s lagging single-digit gain versus the MSCI benchmark, as Finance Minister and Presidential son-in-law Albayrak unveiled another bank-credit fueled plan to restart 5% growth in contrast with last year’s near recession. The central bank with half a dozen rate cuts the past six months has supported the thrust, with the lira firming for a time at a “competitive” level below 6/dollar after previous crash fears, officials assert. Renewed monetary relaxation has resulted in negative real rates, with inflation stubbornly in low double digits on food price pressure. State and private banks were ordered to reclassify loans so that the NPL ratio is above 5%, but they are expected to again open the spigots as the government debates a central bad asset disposal arm. As a contingent fiscal liability the move along with accounting for public-private infrastructure partnerships could reveal a sizable deficit at odds with traditional balance. High-profile construction projects remain saddled with high debt, as President Erdogan vows completion through local funding and new Gulf and Asian sources. His team pledges better management with industry and operating overhauls at the core of the near-term structural reform agenda, without relinquishing close business ally control.

Along with loose monetary policy, the current account deficit resumed in January after a rare surplus was registered last year on import squeeze. Agriculture and textile exports are at the mercy of world market values and auto-assembly has suffered with Europe-wide downturn. Foreign portfolio outflows as a trend have slowly reversed, but direct investment as a perennial weak spot is meager. The amount of usable foreign reserves is a mystery with resort to interbank and stock exchange currency swaps, while the offshore market is banned and bank deposit dollarization has barely budged. At most tens of billions of dollars is available, as private sector debt rollover is in the $100 billion range in 2020, with the global liquidity picture potentially tightening at the margin. Unlike 20 years ago the government insists an IMF program is not under consideration, as it turns to China and regional neighbors for potential infusions.

Politics is a major driver of the economic strategy repeat after the ruling AKP party lost Istanbul and other big cities to opponents now in charge of over half the country’s output. The former prime minister and his deputy defected from the group to start a new competitor, and a succession race has broken out among the incumbent’s backers. President Erdogan’s popularity was briefly boosted with his takeover of Kurdish-run Syria as US President Trump pulled troops back, although relations between the two remain volatile, with the latter regularly threatening trade sanctions and tariff hikes. Strains with Europe have multiplied over Cyprus, Syrian refugees and Libya, where Ankara voted to intervene militarily on behalf of the Tripoli regime which has lost central bank and oil field control. Its main challenger with ISIS knocked out of the contest is General Shifter, who lived in exile in the US, getting arms from Russia, Saudi Arabia and the UAE. The fighting has spawned massive internal displacement alongside the African onward trek to Europe, with EU assistance not primed for recycling.

The EBRD’s New Scaffolding Scrapes

2020 February 21 by

The approaching 30th anniversary of the post-communist European Bank for Reconstruction and Development, with a core democracy and private sector building purpose and geographic spread to the Middle East and Central Asia, has set off a wholesale rethink after a high-level task force recently weighed in on the Luxembourg-based European Investment Bank’s future. That report urged reorientation on climate and sustainability lending in poor countries, with the EBRD as a possible shareholder in a spinoff entity. It came as the EIB’s main infrastructure project portfolio will likely come under pressure with post-Brexit budget cuts, and member countries are able to separately attract private debt and equity finance. Europeans together still hold a majority stake in the London-headquartered Bank, originally championed by a French official on the understanding it would be built elsewhere. North African nations joined after the Arab Spring and stillborn attempts to create a stand-alone Middle East body, and the target central and east Europe block now accounts for only one-third of investment, with the Southeast and MENA roughly split at 20%. Total allocation to date is around $150 billion, with Turkey replacing Russia as the leading single focus after post-Crimea sanctions suspended operations in the latter. Infrastructure and energy currently absorb half of commitments, in contrast with the early manufacturing and services footprint. 80% is loans, 15% equity, and 10% guarantees and other “de-risking’ instruments. Banking and capital markets work came to over $50 billion for 2000 projects through 2018, and an active technical assistance program recruits foreign advisers and consultants. Only a half dozen of the founding area members did not rise in income classification, and the Czech Republic “graduated” from eligibility altogether a decade ago. The US remains a large shareholder with a 10% holding, and it has emphasized geopolitical rivalry in recent years against Russian and Chinese economic and credit expansion in the area. Moscow has natural gas pipelines and drew neighbors into the Eurasian Economic Union aiming for full integration with Belarus, while Beijing’s Belt and related initiatives sprinkle $300 billion across the wider Silk Road.

A December CSIS think tank report points out that graduation policy is undefined and that “fault lines” have opened as borrowers may be tempted to turn to cheaper sources with “malign interests.” It argues that assigning a green mandate within the context of a new organization would confuse its mission and undermine a versatile commercial culture, and that expanding into Africa and other low-income regions will stretch capabilities and create additional rivalries. However on the issue of migration the EIB and EBRD could better collaborate on fresh solutions, building on the latter’s Syrian refugee support in Jordan and Turkey which also acts as a “force multiplier” for US humanitarian assistance. Rediscovery more than reinvention should be the future strategy especially with frontier capital market deepening lacking basic knowledge transfer. More countries should graduate under a clear process, and equity and guarantee volume can better balance loans. These changes should be embraced under the next President as longtime leader Chakrabarti exits the scene, and the US should not consider reducing or selling off its estimated $150 million share, which can backfire in both deal and diplomatic terms, CSIS warns.

Ukraine’s Unimpeachable New Program Sentiments

2020 January 24 by

Ukraine shares looked to reverse MSCI Index double-digit loss into the new year, as the Zelinsky government with an overwhelming parliamentary majority and no elections until local ones in late 2020 set out to ink a successor IMF deal with shared anti-corruption and privatization elements. Another $5 billion-plus extended arrangement is under negotiation, although it may be precautionary despite large public and private sector debt repayments if foreign direct and portfolio investment jumps on expected land reform and refusal to return failed Privatbank to controlling oligarch hands. The relationship between that shareholder Kolomosky and the President since they teamed on the former’s television network is at the heart of banking system and donor direction, since a clean break is presumed to firm cleanup credentials. The central bank has been the target of media and personal attacks for nationalization and criminal prosecution and asset recovery steps, with billions of dollars in insider cash allegedly spirited out of the country. Kolomosky’s wealth remains frozen despite London court action, but the cohort’s reach is illustrated by close ties with members of the Trump inner circle among associates of accused money launderer Firtash around the impeachment scandal. Lawyer Giuliani reportedly signed up several Ukrainian clients seeking diplomatic favor and competition with the Naftogaz energy monopoly. Former and current administration officials lobbied for personnel and commercial changes and were part of a push to investigate former Vice President Biden’s son previously serving on the board of a private rival, according to witness testimony to Congress.

The economic backdrop has brightened for Fund facility renewal with growth estimated at 4% through next year on 6.5% inflation in the third quarter, enabling a 100 basis point benchmark rate drop. Food prices are under control with a good harvest, and the currency has stabilized around 25/dollar on a 3% of GDP current account deficit. The 2% budget gap target is on track, and higher gas transit fees and tax collection are possible for further consolidation. Warrants in the original external debt restructuring should pay off with growth above 3%, but the 50% ratio to output remains worrisome as technocrats in Kiev mull another haircut or maturity extension proposal. Geopolitical adversary Russia has a suit outstanding from the Yanukovych era for un-serviced loans, as its banks have taken over networks in Crimea and the east. Presidents Zelensky and Putin may meet amid an unobserved cease-fire in the civil war, as thousands of families are displaced in the Donbas region without access to humanitarian relief. Russian growth is half Ukraine’s with oil exports subject to tricky production understandings with OPEC, and big infrastructure projects slow to materialize as a means also to defuse popular protests. The central bank tapered interest rates and the Kremlin drew on the stabilization fund for modest stimulus, with inflation within the 4% medium-term target. It plans to “de-dollarize” the sovereign wealth pool to avoid Washington’s sanctions ambit and ride ruble appreciation, as it also unveiled an exchange blueprint for smaller and lesser-known companies in the net to raise debt and equity locally. Despite a 30% MSCI surge share manipulation persists in creative forms, the latest a Foundation created for technology listing Yandex to ensure against state ownership removal.

Europe’s Capital Markets Marriage Altar

2019 October 13 by

With Brexit and a new central bank chief hogging the EU agenda, the financial services industry has revived the call for capital markets union set out in recent blueprints to strengthen the existing commercial and supervisory foundations and competiveness versus developed and emerging world rivals. An IMF paper notes that regional households and companies overwhelmingly rely on banks, and that relatively small national size may cost an extra 250 basis points for debt. Integration has been a goal since single market launch decades ago with alignment lacking on transparency, regulatory and insolvency practices. The survey shows “no roadblocks” or “grand bargain” need for immediate progress on cross-border private risk sharing to promote growth and absorb economic shocks. Euro area bank assets are 300% and corporate bonds 85% of GDP, but securities are less than 70% in Central Europe and the Baltics. Home bias takes half of equity allocation, and the half trillion euros investment fund industry is the main institutional and retail segment under the UCITS directive, followed by insurers and private pensions.  Hedge and private equity funds are half the US total, and derivatives through London with the associated clearing houses will likely shrink in the near term with Brexit undermining liquidity and trading. Startups are particularly unable to find funding, and the lack of portfolio diversification hurts consumption and income. The IMF polled officials and executives and charted wide variation in offering, accounting and tax treatment. Bankruptcy frameworks are separately tracked with the World Bank’s Doing Business data base across a broad range, and outside the evolving “single rulebook” the new European Securities Authority (ESMA) will enforce and monitor. However its powers are “limited” in terms of mandates and fines, the document remarks.

The 2015 action plan focused on innovation, infrastructure investment, and administrative alignment and was updated in 2017 to enable issuance of common prospectus, securitization and venture capital rules. On prudential oversight the European Parliament approved a risk-based formula this year for firms with assets over Euro 30 billion, and an area-wide personal pension model is under development. Another proposed standard will cover corporate insolvency and a consumer protection one is under consideration. The IMF recommends a central reporting system and data base as with EDGAR in the US, and faster withholding tax refund on-line. Oversight should be “proportional” and apply to critical structures like clearing houses and the largest bank-connected houses. ESMA could use independent board members and forge cooperation pacts with global counterparts in its initial stages, and debt enforcement standards are an immediate priority in view of big disparities. Capital market and banking unions should be in “healthy competition” as Europe moves away from traditional relationship-driven sourcing. The push came amid a mixed MSCI Index showing from members through August, with Greece the only positive core constituent on a 20% jump, while the Czech Republic, Hungary and Poland fell 5-10%. On the frontier Romania was up 20% and Estonia off 5%, as the Baltics grapples with pervasive money-laundering scandals carrying financial institution penalties and demanding future integrity and solidarity on the issue

Greece’s Explosive Election Odyssey

2019 August 16 by

Greek stocks up 30% on the MSCI Index through mid-year continued to surge after Prime Minister Tsipras’ snap election maneuver backfired, as his party lost to the conservative opposition which took a parliamentary majority. New government head Mitsotakis follows his father in the post previously, with an Ivy League US education and management consulting background pledging business-friendly policies. His Finance Minister will oversee a corporate tax cut, but warned of “hidden bombs” likely to aggravate the record debt load from hundreds of billions of euros in consecutive EU rescues. Contingent liabilities around state enterprises never restructured or privatized under leftist administration could complicate the 15-year repayment plan agreed with Brussels at concessional rates with a long grace period. It insists in return on maintaining stringent fiscal targets such as a 3.5% of GDP primary surplus, which the incoming Prime Minister campaigned against to boost competitiveness and higher growth than the recent meager 1-2%. Officials from the bailout facility repeated that austerity was a “cornerstone” as other regional struggles over Brexit and migration pre-empt appetite for reopening the Greek saga. A potential ally in softer terms may be ECB governor nominee Lagarde, who advocated outright cancellation as IMF chief, but her immediate priority will be another round of quantitative easing in some form to stoke anemic 1% growth and inflation. With bond-buying and commercial bank on-lending potentially exhausted, she is under pressure to follow the Japanese model into equity holding investors consider a double-edged sword. The new team will look for easy wins like slashing foreign investment bureaucracy and screening that has slowed mining projects, and the cabinet draws on well-credentialed expatriates in the hope of luring back professionals leaving over the past decade’s crisis. Right after the victory, a 7-year bond was heavily oversubscribed with a yield under 2%, as an initial vote of confidence that growth and real returns can outpace neighbors, especially as the “peripheral” story fades in Italy, Portugal and Spain. In core emerging markets the juxtaposition is increasingly with Turkey, where stocks were down 5% in the first half coinciding with the ruling AKP party’s second defeat in the rerun Istanbul major’s race. The fragmented opposition unified around a moderate candidate, as President Erdogan’s grouping has begun to splinter, with the latest defection from his former deputy Babacan. The political as well as economic consequences to loss of the biggest city are far-reaching, as big infrastructure projects and favored business relationships will come under scrutiny and could reveal more serious banking and corporate sector weakness. Around $150 billion in external credit lines must be repaid over the next year after a cumulative 40% lira drop against the dollar since 2018. Depreciation drove inflation above 20%, and quashed import demand also helpful in curbing the current account deficit. The President blamed the poll setback on central bank rate hikes to near 25%, which he claims worsen inflation in contravention of economic orthodoxy.  He sacked the governor and named his deputy as replacement in a fit of pique, and the latter immediately cut the benchmark 4% and pledged more accommodation.  Foreign investors shunned securities in their own swift sanctions on undermining independence, as the US and EU prepared to counter Russian military and Cyprus oil moves with punishm

Central Europe’s Strained Strongman Sensibilities

2019 July 14 by

Central Europe stock markets were unsettled through May, amid a raft of popular protests and backlash against insider dealings and economic policies designed to keep compromised leaders and ruling parties in power. The big three Czech Republic, Hungary and Poland MSCI components were flat to negative, with the first again a regional growth laggard at 2.5% as thousands poured into the streets in anti-Babis demands for his prosecution and resignation over business-political conflict including on EU contracts. Exports dipped 6.5% in Q1 on weak German demand, while wage pressure keeps inflation above target for the central bank’s tightening bias. Brussels has not yet condemned Prague for democratic institution manipulation as in Budapest and Warsaw, where regime allies did well in recent European elections on anti-immigrant expansionary spending platforms. Hungary’s 2020 budget is more restrictive, with a proposed 1% of GDP deficit as cohesion funds run out, but the government retains the option to loosen the purse strings while monetary policy is also slack. Domestic pump-priming is vital to preserving Prime Minister Orban’s support and to counter slumping auto sales as US tariffs go into effect. Poland is the growth champion at 6% in the last quarter on a double-digit capex bump with EU projects, on top of the 2% of GDP stimulus unveiled by Law and Justice officials heading into national elections. It took almost half the vote in the May European contest, with consumer confidence buoyed by strong retail buying. Higher inflation near 2.5% is the tradeoff, with rate hikes likely off the table until polls are completed.

In the frontier mix Bulgaria and Romania were at opposite ends with a respective 5% loss and 9% gain. The former’s net exports suffered from Turkey’s crisis, but household demand drove 3.5% growth. It is on track to enter the exchange rate mechanism’s initial stage this summer on the way to full medium-term euro adoption replacing the currency board. The timetable could be complicated by low income and anti-corruption status, as banks undergo a comprehensive asset quality review. Romania’s growth and inflation are both 4%, as the socialists leading the coalition got only half the previous result in European elections on sleaze outcry landing a former president in jail. Voters approved a non-binding referendum on court system overhaul to punish malfeasance, after a prosecutor was attacked for charging senior officials. Another election may be called for early next year, and could further swell the fiscal deficit toward 5% after promised pension hikes with no IMF program in place. The burden may fall on the central bank to tighten with the currency now a rare overweight recommendation in the area. In the Balkans, Croatia and Serbia have drawn positive notice with expected sovereign ratings upgrades, after S&P restored the former’s investment-grade in March. It is no longer in Brussels’ excess deficit procedure, with improved state company earnings balancing the budget. Formal euro accession negotiations should begin in the coming months, before another election cycle. Serbia’s structural reform record and fiscal rule setting were praised under the IMF’s policy support instrument, as President Vucic remains under pressure to purge political allies accused of wrongdoing while he treads a fine diplomatic line on Kosovo relations as a related tripwire.

Ukraine’s Sincere Gnawing Inauguration

2019 June 16 by

Ukraine stocks and bonds, after a bump on former comedian Zelenskiy’s resounding 75% presidential election haul, girded for a rough foreign policy, economic and anti-corruption transition period with the untested politician taking office. He had reform advisers for the campaign, but also a close relationship with the oligarch controlling the media outlet for the show that launched his candidacy who was implicated in fraud at the largest private bank. The central bank seized it as capital was also injected into ailing state lenders, with the system NPL ratio at 50%. The action was declared unconstitutional right before the vote, as the outgoing government likewise spurned another element of the twisting IMF program by lowering gas prices in a last ditch popular bid. The new president immediately called for fresh parliamentary polls as he seeks to lift lawmaker immunity from criminal charges. Russia offered citizenship to eastern breakaway regions at the same time, and ignored a European human rights tribunal ruling to release detained Ukrainian sailors following a Crimea incident. Fund disbursement is unlikely until the Zelinskiy team settles in and meets previous conditions, including unified bank and securities market regulation. The public sector and banks owe $10 billion in combined external debt over the next year, versus $40 billion in corporate repayment Reserves and liquid foreign assets were $25 billion at the end of 2018, with 40% banking system dollarization and high capital flight risk around political and growth uncertainty. GDP will increase 3% again this year, subject to agriculture and metal commodities price swings, and private consumption reflecting marginally positive credit growth. However the latter could be endangered if Privatbank is returned to its owner, also triggering cronyism accusations, and weak state units like the Export-Import Bank continue to run up contingent liabilities, especially as the books undergo fresh inspection.

Russian financial assets rallied in turn on the removal of incumbent hard-liner Poroshenko from office, although he vows to remain a vocal diplomatic opponent in parliament. Local equity and external corporate bond placements proliferated, and foreign investors snapped up sovereign issues on the prospect of easing regional and global tensions. President Zelinskiy signaled resumed dialogue with the Kremlin during the campaign without offering specifics, and the Mueller report conclusions in the US dismissing 2016 Trump team criminal conspiracy may stall further congressional sanctions momentum, including a government debt allocation ban. Moscow has also agreed to work with Washington to support talks between the Maduro regime and opposition in Venezuela, under the threat of civil war and millions more fleeing the country’s humanitarian and hyperinflationary collapse. However Russian growth remains flat with living standards stagnating below the wealthiest tier, and President Putin recently turned to China to drum up investment in the poor Far East around Vladivostok. A tax-free special economic zone is in place there, but Chinese companies criticize complex rules as a main business deterrent. Arbitrary rule of law is not the same red line Western partners cite as their FDI is barely positive. Jailed private equity fund managers in a dispute with Kremlin allies have requested permission to attend outside meetings ahead of the prestigious Saint Petersburg global forum as a measure of the authorities’ seriousness in mending investor ties.

Ukraine’s Comedy Candidate Cringe

2019 April 7 by

Ukraine shares struggled to stay positive on the MSCI frontier before the first round of presidential elections, where a well-known comedian leads 40 rivals in surveys ahead of incumbent Poroshenko and previous occupant Tymoshenko. The frontrunner Zelensky has no detailed campaign platform beyond establishment mocking, but reminds voters that television personalities without political experience triumphed in the US and elsewhere, although he has been accused of close association with oligarchs who dominate the media. The incumbent has highlighted a mixed reform track record, as the latest IMF program is due to expire later this year, and his willingness to confront Russia on the fifth anniversary of Crimea’s seizure as the east of the country continues in civil war. Tymoshenko, after emerging with a burnished reputation for opposing the Yakunovych regime landing her in prison, has been haunted by old state oil company corruption allegations as she assumes a populist economic policy stance. Her anti-Fund position and spending promises come as the constitutional court threw out the anti-corruption law passed to satisfy international donors and energy subsidy reductions were further delayed. Pre-election budget strains led the government to re-open a 2028 external bond but sell it directly to JP Morgan’s trading desk given larger investor doubts about growth and servicing. Prospects for GDP warrants paying off are mixed with 3% expansion forecast this year on flat EU exports and domestic consumption. Inflation is just below double digits and the currency rebound against the dollar is expected to stall after the polls. The current account deficit is stuck at 10% of GDP with remittances and international aid the main bridges as foreign direct and portfolio investment falter. External financing needs are 40% of output annually, with gross reserves only $20 billion, and another banking system rescue may be in order with the bad loan ratio still 50%. Nationalization and fraud charges against the biggest private competitor Privatbank controlled by the oligarch Kolomonsky have entered campaign debate as he owns the comedian’s TV channel and rumors fly that he is pulling the strings. Average citizens are angry at frozen living standards and the Russia conflict but have also reportedly been targeted by Moscow disinformation to sway their preferences toward the neophyte who may be inclined to friendlier relations than other chief candidates in the mix as sworn enemies. The split widened early in the election cycle with Ukraine’s Orthodox Church formally severing ties, and a consensus that the US and Europe should stiffen trade and financial sanctions after five years of battle claiming tens of thousands of lives and displacing even more.

Russian shares were up 10% on the MSCI Index through February following a sovereign ratings downgrade, but growth is only in the 1% range on a precipitous FDI drop in anticipation of further cross-border commercial curbs. 5% inflation, pension retirement age delay and higher value added tax have slashed President Putin’s popularity rating to 60%. With the balanced budget, he unveiled new social spending to regain momentum, while dismissing international investor criticism over the detention of veteran private equity executive Calvey, caught in a bank dispute with a Kremlin ally. Over three decades he managed to avoid controversy while maintaining a top reputation for performance and integrity, and colleagues invited to the summer St. Petersburg economic forum have chosen their own boycott to convey a message.