Friday, April 29, 2005

World Bank: Manila Ponders Securitization Of Remittances.

Finally, an innovative way to access unexploited reserves.....

World Bank: Manila Ponders Securitization Of Remittances.

The Philippine government is looking to use securitization to tap into the billions of dollars of foreign currency sent home each year by the 7.5 million Filipinos living or working overseas, The Asian Wall Street Journal reports.

Among the ideas being touted by foreign and local banks, as well as supranational bodies such as the Manila-based Asian Development Bank and the World Bank, is securitization whereby future remittance flows would provide the assets behind a bond issue. The structure has been used successfully in places such as Mexico, Brazil and Turkey, but never before in Asia -- surprising, perhaps, since India and the Philippines are the world's largest recipients of remittances after Mexico.

In February, Filipinos working outside the Philippines sent back $720 million to their families, 19 percent more than a year earlier. The Philippine central bank projects remittances to reach $9 billion this year, compared with a record $8.54 billion set in 2004, as more Filipinos seek work overseas and are increasingly taking higher-paid jobs as nurses, engineers or musicians. Repatriated funds last year accounted for about 10 percent of nominal gross domestic product and 15 percent of total current-account receipts.

For decades, that cash has gone -- through banks, remittance centers or in suitcases -- back to workers' families to be spent on food, education and homebuilding or, if there is any left over, on excess consumption or to idle in the bank. But the government, for one, has been considering a better use for the remittances. Iluminada Sicat, officer-in-charge in the Economic Statistics department at the Finance Ministry, suggested they could be channeled to invest in small businesses. Overseas workers' earnings also could be used to finance the country's foreign-exchange requirements, she said. The ADB also is pushing the Philippines to find ways of harnessing the cash flows to support developmental needs. In 2003, one-quarter of the 86 million Philippine population still lived below the poverty line. National Treasurer Omar Cruz said last month the government was again studying the idea.

Wednesday, April 27, 2005

China Signs Trade and Investment Deals With Philippines Worth $1.5 billion

China sealed a $1.5 billion trade and investment deal with the Philippines today. Most of which were centered on the MINING and Energy and OIL exploration industry. Yet if you look at our Phisix these are the main issues being jettisoned and disgorged by local investors as if these industries are condemned to perpetual damnation. I wonder who is accursed? This is the report from BBC...

That includes agreeing investments and loans worth more than $1.5bn, to fund Philippine infrastructure and mining projects.

Mining is a key growth area as President Arroyo tries to cut debt, improve the economy and restore investor confidence.

The government says the Philippines is home to vast reserves of mining wealth, most of it unexploited.

China's state oil firm also agreed to a possible $10m investment to look for oil off the coast of Palawan island in the western Philippines.

As Chinese firms look to fuel an economy that is expected to grow 8.5% this year, the Philippines hopes to benefit from that enormous appetite for resources.

World Bank: Nigeria At Risk Of $33 Billion Default

It has been a de rigueur to brand the Philippine economic setting as having segued into a state of crisis or of concerns of the possibility of ending up in an Argentinean-like morass. While the domestic financial balance sheets do reflect an exigent impasse requiring urgent reforms, it is not time to push on the panic button.

Because most of us are too confined with the domestic perspective this press release from World Bank would show that there are countries that have even more pressing problems than us…take for example Africa’s largest oil producing country, Nigeria

World Bank: Nigeria At Risk Of $33 Billion Default

Nigeria is heading towards an Argentinean-style default on its $33 billion of overseas debt unless western creditors accept a deal to alleviate the country's financial burden, The Guardian (UK) reports a delegation from west Africa's biggest economy said in London yesterday.

As part of a four-country visit, the senior politicians warned that public unrest was growing over the hard-line approach adopted by the west and that time was running out for negotiations. Farouk Lawan, the chairman of the finance committee in Nigeria's house of representatives, said: "It is unconscionable that Nigeria has paid GBP3.5 billion in debt service over the past two years but our debt burden has risen by GBP3.9 billion - without any new borrowing. We cannot continue. We must repudiate this debt." Lawan, who moved a resolution last month calling on the government of president Olusegun Obasanjo to repudiate the debt, said parliament might trigger a crisis by refusing to sanction the funds to pay creditors.

"We are getting close to saying that we won't pay."

Britain is Nigeria's largest creditor, with 21 percent of its debt, and Gordon Brown has been backing an initiative to use Nigeria's windfall from higher oil prices to pay the creditors a fraction of what they are owed. Treasury sources in the UK said that no figures were at present on the table, although the starting point for negotiation has been a paper from a Washington think-tank suggesting that Nigeria should pay 30 cents for every dollar owed. That would mean Nigeria paying around $9 billion from its $17 billion reserves. The UK believes a strong Nigeria is vital for growth in the whole of west Africa, and has been seeking to broker a deal.

Other creditors have questioned whether Nigeria has really overcome the corruption that has bedeviled the country for decades and have expressed concerns about the lack of an International Monetary Fund economic reform program.

The group said Nigeria's plight was far worse than that of Argentina, which this year presented its creditors with a take it or leave it offer to pay 30 cents for each dollar owed. Lawan said 79,000 children under five were dying every month through a lack of healthcare, clean water, food and shelter. Todd Moss, of the Center for Global Development in Washington which came up with the proposals for the debt write-down, said the creditors should accept an offer. "In 2005 Nigeria has an unusual amount of cash on hand and an opportunity finally to resolve its problem. The creditors also have solid political, strategic and humanitarian reasons to cut a deal. Missing this opportunity will not only lose creditors their best chance to collect this debt but could also threaten the economic and democratic reforms in one of Africa's largest and most pivotal countries."

Meanwhile, in a special report on Nigeria, The Financial Times writes that the stakes have been rising in Nigeria's bid for relief on its foreign debt which, at almost $36 billion, is the largest in Africa. The government wants a deal from the Paris Club of bilateral government creditors, which holds the bulk of the debt, for a two-thirds reduction.

But arguing the case for debt forgiveness has been hard at a time when Nigeria has been using high oil export prices to build record foreign exchange reserves, now equivalent to abut 60 percent of its outstanding external debt. But Ngozi Okonjo-Iweala, finance minister, insists: "We don't want to wait until oil prices crash." Britain, the leading creditor with about $8 billion outstanding, has been Nigeria's chief supporter.

Nigerian negotiators say the US has also been sympathetic, with the strongest reservations coming from the Netherlands, Germany and Japan. Paris Club negotiators, however, want first to see proven results of Nigeria's reforms, especially in tackling corruption.

The Financial Times also writes in a separate piece that Nigeria has been growing in real terms at an annual rate of six percent or more but is still searching for a more diversified economy that would create jobs and make a decisive impact on poverty. The counterweight to Nigeria's position as Africa's largest oil producer is its growing population of more than 130 million. Oil revenue per head is less than any of the other top exporters. Last year's, after deduction of its share of production costs, worked out at $0.53 per day for each Nigerian. The windfall from oil prices last year brought savings of $5.9 billion from revenues above the budgeted price level of $25 a barrel. Half of this is earmarked for priority spending areas this year, such as education, health and vital infrastructure facilities, the remainder kept as a buffer against future oil price volatility, in an effort to avoid the zigzag growth pattern Nigeria has suffered in the past.

Monday, April 25, 2005

Philippine Crisis Pales in Comparison to Exploding Global Imbalances

Philippine Crisis Pales in Comparison to Exploding Global Imbalances

Yes, the Philippines does look as if it is in a perennial state of quagmire. However if one would compare the current global imbalances with that of the Philippines, our so called ‘crisis’ pales in comparison to whatever we are facing internationally. In a strongly worded article ex-Fed Chairman Paul Volker warns that “We (US) are skating on THIN ICE” which I strongly suggest that you read.

Moreover, if Argentina, which we are unjustifiably lumped with (according to diverse views of various renowned economists-pegged exchange rate, raising taxes during economic slowdown, rigid IMF conditionalities as possible culprits for its default-totally dissimilar to our economic landscape), is the paragon of the economic turmoil that we are currently faced with, then Buenos Aires’ successful renegotiation of its debt default, the largest ever in the world of more than $100 billion, makes one wonder if this default option would also present to be viable for the Philippines. For your information about 76% of the total sovereign creditors accepted a haircut of about 30 cents to a US dollar. This means that creditors took in about 70 cents loss!

And to think that this should lead Argentina to an economic pariah is certainly a misconception! Well, the debt negotiation resulted to IMF infusing $3billion, post negotiations we note that China, South Korea and several regional private firms have been investing, and remittance from its overseas workers are ballooning, it looks as if Argentina, despite its economic woes has progressed a lot and beyond any expert’s expectations!

Let me quote Larry Rohter of New York Times, ``The Brazilian oil company Petrobras bought a stake in a leading energy company. Another Brazilian company, AmBev, has acquired a large interest in Quilmes, Argentina's leading beer brand, and a Mexican company has bought up control of a leading bread and cake maker…Asian countries, with China and South Korea in the lead, have begun to move in. During a state visit last month, the Chinese president, Hu Jintao, announced that his country plans to invest $20 billion in Argentina over the next decade…But the bulk of the new investment comes from Argentines who are beginning to spend their money at home, either bringing their savings back from abroad or from under their mattresses. For the first time in three years, more money is coming into the country than is leaving it.”

Just look below at Argentina’s key benchmark index, does it manifest of a crisis after its debt default in December 2001?

Argentina Merval Index

In fact Argentina has been bouncing back strongly on strong commodity prices and investments from foreign private and state firms, and local overseas remittance money as stated above.

So if you guys really want to consider the Argentine option then I would suggest that you read an article by Grant NĂ¼lle of the Ludwig Von Mises institute who advocates debt repudiation for the Philippines in ``Raiders of the Taxpayer’s Money”, although I do not support such moves because it is fraught with risks, especially in a global monetary environment which appears to be slowing in liquidity growth.

Finally, the appreciating peso should help alleviate our debt burdens. (Haven’t you noticed the paradox, despite the worrisome debt burdens the peso continues to appreciate?)

Again global macro developments call for Asian currencies to adjust relative to the overvalued US dollar to be able to mitigate the growing current account imbalances and bubbly credit markets worldwide, and thus the Peso should benefit from the regional flows despite being by plagued by its domestic debt burden.

Vital fiscal and governance reforms are thus required. However, worst comes to worse there is always an option for some kind of settlement (restructuring) and we must not to be hoodwinked by spooky headlines. Posted by Hello

Tuesday, April 19, 2005

The Economist: Unrest that riles Tokyo and worries Beijing

Growing tensions between China and Japan underscores emerging geopolitical risks...According to the Economist…

China’s government worries that if it is seen as too weak towards Japan, or cracks down too hard, the protesters could turn against the party. In the last century, pro-democracy unrest in China was often closely linked with patriotic demonstrations. Many participants in the recent protests have been university students, a group kept under particularly close watch by the authorities since the student-led protests in Tiananmen Square in 1989. The internet and mobile phones have enabled rapid mobilisation (organisers say more than 20m people have signed an electronic petition against Japan’s UN bid). The nationalist genie, once unbottled, could prove hard for China to restrain.

Is China showing signs of losing grip?

A Whiff of Stagflation?

Too much rate hikes pricks the bubble, a slowdown would probably compel the US Fed to ease; the probable consequence…stagflation. Discerning excerpts from Mr. Paul Krugman published on the New York Times entitled “A Whiff of Stagflation”

``What's driving inflation? Not wages: labor costs have been falling, because wages are growing less than productivity. Oil prices are a big part of the story, but not all of it. Other commodity prices are also rising; health care costs are once again on the march. And a combination of capacity shortages, rising Asian demand and a weakening dollar has given industries like cement and steel new "pricing power."

``It all adds up to a mild case of stagflation: inflation is leading the Fed to tap on the brakes, even though this doesn't look or feel like a full-employment economy…Can the Fed stop raising interest rates and go back to rate cuts without causing the dollar to plunge and inflation to soar?

``Or suppose that there's some kind of oil supply disruption - or that warnings about declining production from Saudi oil fields turn out to be right. Suppose that Asian central banks decide that they already have too many dollars. Suppose that the housing bubble bursts. Any of these events could easily turn our mild case of stagflation into something much more serious.”

How serious, hyperinflation or deflation?

Thursday, April 14, 2005

Tuesday, April 12, 2005

Ex- US Federal Reserve Chairman Paul Volker: "We are skating on increasingly thin ice."

Former Fed Chairman Paul Volker, as a keynote speaker in Stanford
for Economic Policy Research last February 11th, goes on the record to lambaste his successor’s policies, and highlighted the growing risk that may that may turnout to be catastrophic to the financial markets and global economy…

"Below the favourable surface [of the economy], there are as dangerous and intractable circumstances as I can remember.... Nothing in our experience is comparable…But no one is willing to understand [this] and do anything about it…"

"We are consuming… about six per cent more than we are producing. What holds the world together is a massive flow of capital from abroad… it’s what feeds our consumption binge... the United States economy is growing on the savings of the poor… A big adjustment will inevitably become necessary, long before the social security surpluses disappear and the deficit explodes."

"We are skating on increasingly thin ice."

Thursday, April 07, 2005

Prudent Investor: Possibly ABN AMRO's downgrade triggered the Exodus

If you’d ask me, I think that today’s excruciating selloffs was an outlier, we took the biggest loss in the region where most of the bourses were up.

What would have caused this? Certainly for one, today’s activities manifested a huge foreign outflow, some P 364.404 million. Further the liquidations had been broad based meaning more issues encountered foreign selling than buying. So what would have prompted a selloff? Has there been any fundamental deterioration in the economic and political sphere that merited today’s carnage? Some say looming interest rate hike, I would argue that these had been floated for during the past weeks, and the latest rise in Philippine Treasuries would have had the market factored this in. In fact, according to a Businessworld report last month, it was foreign funds pressuring the BSP to raise interest rates. So how can foreign funds be selling when they themselves were asking for the rate increase?

Methinks that it is NOT the looming interest rate hike responsible for the bloodletting but yesterday’s disclosure on YAHOO news that ABN AMRO Holdings ``downgraded its rating on the Philippines to “neutral” from “overweight” citing the country's vulnerability to an outflow of foreign funds” (click on link). Apparently this “downgrade” on stockholdings came as a surprise and foreign money reacted violently to the susceptibility of the market to the whims of foreign funds. What is ironic about this is that ABN AMRO knows that the Philippine Market has been driven largely by foreign buying since June 2003, and because of the recent dollar squeeze it issued what is called as ``stating the obvious”. A Knee Jerk reaction.

Wednesday, April 06, 2005

Bloomberg's William Pesek: In Manila, Downgrades Are Good for Bonds

Bloomberg Asian Analyst William Pesek, finds it ironic that after two recent credit rating downgrades investment bank ING sees the Philippine debt as the “most attractive” in Asia. Citing economic growth, stabilizing politics, opportunities to fiscal reform, outsourcing opportunities, and tourism as strong selling points, Mr Pesek thinks that this administration has the window of opportunity to prove these bullish outlook right `` Like all windows of opportunity, this one may not stay open for very long. If the Philippines uses it wisely, its bondholders could be a happy bunch.”

Tuesday, April 05, 2005

The Philippines is into energy conservation mode

The Philippines is into energy conservation mode. Aside from the 4 day work week, the private sector is enticed to shift working hours to the evening via the price of time formula which according to energycentral, “time-of-use pricing formula which offers cheaper rates for electricity purchased at night until early morning when electricity demand is at its lowest.” Aside, to promote the use of alternative energy some 200 buses will be on the road using compressed natural gas. There are also reports that the government will be employing new traffic management scheme as well as a possible increases on vehicle taxes.

Monday, April 04, 2005

Commodities' Q1 rally puts other assets at risk in Q2

Commodities greatly outperformed stocks and bonds after the CRB Index hit a 25-year high in March, and it seems that the trend is likely to continue, according to a Reuters report by Nick Edwards, ``…their strength could intensify the downside risks for stocks and the global economy in the months ahead, money managers say… If similar patterns are repeated in the second quarter, the inflation risks that rampant rises in commodity markets stoke up in the broad economy could bring big trouble -- especially as they coincide with slowing company earnings and shrinking productivity gains.” Is this the beginning of the unfolding divergence???