Asia specialist tells World Finance that China is likely to be a late signatory to TPP, which Ma is preparing for.
Come back later for a full transcript of this video.
Year: 2015
Greece defaults on IMF loan; country in chaos
As expected, Greece missed its payment deadline on June 30 to the IMF. Just hours before the midnight expiry date was reached, Eurogroup leaders at an emergency conference failed to reach a deal to help the country pay the €1.5bn it owes, and a last minute proposal from Greek prime minister Alexis Tsipras for a third bailout was rejected.
Officially, Greece is now “in arrears” to the IMF. In a press release, Gerry Rice, Director of Communications said: “I confirm that the SDR 1.2bn repayment (about €1.5bn) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared.”
Greece is the first advanced economy to fail to honour debts to the IMF
While the chosen word by the IMF is “in arrears,” with Rice saying last week that official communications would not use the word “default,” by failing to make its debt payments the country has effectively defaulted. Greece is the first advanced economy to fail to honour debts to the IMF, joining countries such as Somalia and Zimbabwe.
A last minute request for a postponement was requested by Athens, which was noted by the IMF to be reviewed by the “Executive Board in due course.” According to the Financial Times, “The board could, if countries holding 70 percent of voting rights decide to do so, offer Greece some respite on grounds of ‘exceptional hardship’. But that is seen as highly unlikely.”
By defaulting on its debts, Greece is no longer eligible for IMF aid, with no comment yet on when it expects Greece to repay its debts. As the world’s lender of last resort, being cut off from IMF aid means the loss of a vital safety net. As Apostolos Gkoutzinis, a partner in London with the New York law firm Shearman & Sterling and the head of the firm’s European capital markets group said, speaking to the New York Times, “Without that backstop, Greece might not even be able to import essential goods like medicines and petrol in the future.”
Greece’s exit from the euro, however, is not yet sealed. On his personal blog in 2012, Greek finance minister Yanis Varoufakis made the case that a default does not necessarily mean Greece no longer using the euro, claiming, “Greece must default within the eurozone.” The minister seems to be sticking to this line, saying lately that there is no legal precedent for a eurozone exit and that the planned referendum on July 5 was not about leaving the euro.
European officials are not yet considering this default as the beginning of the end for Greece’s position in the eurozone. As the FT reports, “Credit rating agencies and EU bailout lenders have signalled they will not consider non-payment a ‘credit event’ that triggers other defaults — something that would bankrupt Athens immediately.” Greece is poised to make further payments to the European Central Bank on July 30. Should it also fail to honour these debts, then its future in – or rather out of – the eurozone would be sealed, with Chris Morris, the BBC’s European Correspondent noting “that would probably be the end.” Likewise, the referendum on new bailout conditions in Greece is to be held on July 5 – which many see as a referendum on Greeks accepting or rejecting a future in the euro – will also have a greater impact on eurozone membership.
Four of the world’s worst sovereign defaults since 2000
1. 2008, Ecuador, $3.2bn: A $31m interest payment pushed the country over the edge seven years ago – and it was forced to default. The default felt unnecessary to many because the country had enough oil money to deliver the interest. Yet politicians had decided against such a route. Last year Ecuador sold $2bn worth of 10-year bonds to return to the international capital markets.
2. 2010, Jamaica, $7.9bn: Jamaica’s staggering debt problem was blamed for its default. Unfortunately, the government was so focused on making interest payments that it neglected public investment and social spending, throwing the economy into turmoil.
3. 2014, Argentina, $1.3bn: For the second time in 13 years Argentina had to default on its debt, when last-minute talks in New York with bond-holders failed. ‘Vulture fund’ investors had been demanding $1.3bn from the country.
4. 2015, Greece, $1.7bn: Last minute efforts by Alexis Tsipras have seen Greece default on the repayment it owes to the IMF. This renders the country unable to call on the IMF for aid in the future.
Ponomarenko: Chinese liquidity injection restored faith in Ukraine’s banking system
Serhii Ponomarenko, Director of Open Market Operations Department of the National Bank of Ukraine, speaks to World Finance about how the Bilateral Currency Swap Agreement remains a key trigger in rebuilding the country’s depressed marketplace.
Working 9-5 to avoid a breakdown
Global productivity figures are down, and some countries have found changes to the standard 9-5 are increasing those figures.
Is Germany the lynchpin in keeping the single currency alive?
Economists debate whether Germany can be trusted to accept mutual acceptance of credit risk and other structural reforms to keep the single currency alive.
Vietnam to relax foreign investment rules
Vietnam is set to abolish its caps on foreign ownership, which would allow foreigners to own a full 100 percent of a firm. Previously, the Communist-run state placed a cap of foreign ownership on certain firms and industries at 49 percent, to prevent foreign businesses from gaining a majority stake.
Vietnam was attempting to make the case for upgrading its classification from frontier market status to emerging market status
The reform is part of wider privatisation push within the country. Vietnam has gradually liberalised its economy since the 1980s, but some leftover state controls remain from the days of the command economy. According to the Financial Times, “The new rules are part of a broader push by Vietnam to step up a sluggish privatisation programme, strike trade agreements with the US and EU, and boost its status in the widely followed MSCI world markets indices.”
It can also been seen as part of a push for reclassification by the Morgan Stanley Capital Index. As Bloomberg reported back in 2014, Vietnam was attempting to make the case for upgrading its classification from frontier market status to emerging market status. The Vietnamese State Securities Commission was tasked with investigating how to go about this, with a reduction on foreign ownership caps said to be one reform that would be pursued.
The latest MSCI market classification review, released in June 2015, however, made no mention of the South East Asian nation, instead focusing on China, Pakistan and Saudi Arabia. This would suggest that Vietnam will have to wait until the 2016 review to hear whether or not it will be considered for reclassification.
US Supreme Court votes against new air pollution laws
The US Supreme Court has voted against new laws to clamp down on America’s biggest polluters, effectively bringing a halt to the Environmental Protection Agency’s plans to limit the amount of toxic pollutants in the atmosphere and in the country’s water supplies. The 5-4 voting split against the new laws means that the Clean Air Act will stay unchanged, on the basis that the EPA failed to factor in the costs associated with the changes.
The Supreme Court calculated that the clean-up and equipment costs alone would cost the 600 affected plants some $9.6bn a year
“The agency must consider cost – including, most importantly, cost of compliance – before deciding whether regulation is appropriate and necessary,” said Justice Antonin Scalia, writing on behalf of the court. “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”
21 Republican-led states and a number of industry bodies appealed against the new laws, which, if passed, would limit coal-fired plants from spilling mercury, arsenic and other hazardous pollutants into the atmosphere. Peabody Energy Corp, the country’s leading coal producer, was the most vocal critic, though many more in the fossil fuels and nuclear industries echoed the company’s concerns.
The Supreme Court calculated that the clean-up and equipment costs alone would cost the 600 affected plants some $9.6bn a year, though the EPA maintains that the benefits, in terms of productivity and health, would amount to somewhere in the region of $37bn and $90n annually. According to the EPA, SNL Energy data also shows that most of the plants in question have already met or have plans to meet the targets in question.
Is manufacturing the centrepiece for EU economic revival?
Economist John Mills and former financial attaché for the Netherlands at the EU Hans Hack speak to World Finance about the financial tools necessary to regain control of the continent’s manufacturing base from emerging market rivals.
Greek tragedy unfolds as banks go into meltdown mode
Following the announcement of a snap referendum, thousands of people across the country began drawing cash from their local ATMs over the weekend. In a bid to prevent more funds from being withdrawn and avert financial collapse, on June 29, the government ordered the temporary closure of Greek banks and the Athens Stock Exchange.
On June 26, Prime Minister Alexis Tsipras unexpectedly called for a national referendum regarding the cash-for-reforms deal; unable to decide the fate of the debt-ridden country, the Greek government has put the verdict in the hands of the people following another breakdown in negotiations with international lenders.
Athens has until June 30 to pay approximately €1.6bn owed to the IMF – the first in a series of upcoming repayments that are due, which will be extremely difficult to achieve without unlocking reforms. Yet the reforms proposed are deemed as unjust by the Greek parliament who have supported Tsipras’ decision to hold a referendum on July 5. “The creditors have not sought our approval but have asked for us to abandon our dignity. We must refuse,” Tspiras said in his televised address.
Athens has until June 30 to pay approximately €1.6bn owed to the IMF
Tsipras has since requested an extension of the bailout deadline, but was rejected by eurozone finance ministers, thereby raising the possibility that the deal being voted upon may not even be available when votes are cast.
In order to keep banks afloat in the meantime, cash machines will be limited to just €60 a day. Overseas transfers are not permitted, except for pre-approved commercial transactions. Cash withdrawal restrictions will not apply to with foreign credit cards and debit cards, so as not to drive tourists away.
Banks on hold: 10 institutions Greece’s government has closed
Domestic:
Alpha Bank
Attica Bank
Eurobank Ergasias
National Bank of Greece
Piraeus Bank
Greek branches of international banks:
Bank of America
Bank of Cyprus
Bank Saderat Iran
BMW Austria Bank
BNP Paribas Securities Services
The ECB declared on June 28 that it will not increase emergency funding to Greek banks, saying in a statement, “Given the current circumstances, the Governing Council decided to maintain the ceiling to the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on Friday”.
The ECB’s announcement and Greek capital controls have sent reverberations throughout European markets and even further afield. In France and Germany, stock markets fell by four percent, while banking shares tumbled by around 10 percent. The impact was also felt through Asia as shares slid by up to three percent in both Hong Kong and Tokyo.
In order to receive the latest bailout deal and remain in the eurozone, the Greek people must now vote on severe austerity measures and economic reforms. Eurozone leaders have blamed the Greek government for bringing a halt to negotiations, while Tsipras has lashed out against the terms being offered. On June 28, the commission released a statement outlining the proposal, which includes increasing the VAT rate and corporate income tax, abolishing oil subsidies for farmers and a drastic reform of the pension system.
Tsipras stated in his address that the Greek people will say no to such policies, believing that this will then strengthen his party’s bargaining position. Others believe that a yes will be voted for in the referendum as the population will opt to stay in the eurozone at all costs, for the consequences of a default would spell even further disaster for the struggling economy.
In spite of what many assume, missing the IMF repayment on June 30 will not necessarily cause a Greek default as credit rating firms focus on debt held by private-sector lenders and the IMF is obligated to give warnings when payments are missed before publishing a notice of default. Furthermore, under the loan terms outlined by the ECB and eurozone, rescue fund are also obligated to call in loans if payments are missed – although, whether they will be in a rush to do so remains doubtful.
Unwilling to go back on his pre-election campaign promises and relent to bullish tactics by international lenders, Tsipras has put this monumental decision in the hands of the people. Although the democratic notion is strong in such a move, many could argue that the slapdash manner in which the referendum was called is irresponsible. As such, the fate of Greece is now left to those living in panic as a result of capital controls and anger amid increasingly difficult economic pressures.
Goldman Sachs warns against Brexit
If British voters decide to pursue an exit from the EU, the financial giant Goldman Sachs says that it will tilt its operations towards the continent.
Reuters reported Richard Gnodde, co-Chief Executive Officer of Goldman Sachs International and co-Head of the Investment Banking Division, as saying: “we would not completely leave Britain but we would certainly strengthen our presence in other locations within the EU.”
Cameron is attempting to renegotiate the terms of Britain’s membership
After the UK’s Conservative Party won a surprise majority in May 2015, Prime Minister David Cameron promised voters a referendum on Britain’s continued membership of the EU. Cameron is attempting to renegotiate the terms of Britain’s membership before voters go to the polls in either 2016 or 2017.
“Britain must remain part of a larger economic bloc. Anything else would damage the broader economy as well as the financial sector,” Gnodde continued. The economic costs and benefits of Britain leaving the bloc are fiercely contested, with pro-EU campaigners camp pointing out that leaving would place the British economy outside of the common market, forcing it to pay tariffs on export to member-nations and make cross-border business with EU members harder and more costly. Others, such as the campaign group Business For Britain, argue leaving would make business with economies outside the EU easier.
If UK-based financial firms do refocus their resources on the continent, the financial capital and home of the European Central Bank, Frankfurt in Germany is most likely to benefit. “I’m not revealing any secret when I say that in the unlikely event of a Brexit we would certainly put more resources into Frankfurt,” said Gnodde.
It’s easy to say ‘Save for the future’: Brazil’s pension challenge
Brazil’s pension system is one of the most generous in the world – and with its ageing population, increasingly overburdened. Alfredo Lalia, CEO of HSBC Insurance Brazil, explains why Brazilians can find it hard to plan for retirement, and the reforms currently underway to combat the challenges Brazil faces.
World Finance: Retirement and pensions are an issue worldwide. And in Brazil, this is no exception; with recent HSBC Fundos de Pensão research showing that a great proportion of the country’s population are gravely underprepared. With me now is Alfredo Lalia from the fund to speak about the challenges the industry is facing.
Well Alfredo, Brazil’s pension system is well-known to be overburdened. But it also has some of the most generous pension rules in the world, so how does it stand today?
Alfredo Lalia: Yes, in fact Brazil is a developed country, with a very generous public pension offer. So we are at risk of having big growth in the ageing population, without them becoming rich, as has happened in developed countries.
So, it’s a challenge to solve from next year, and pension funds can solve a part of this gap.
World Finance: Now, at the start of this year, pension benefits were cut due to austerity measures. How has this impacted the industry, and the already overburdened population?
Alfredo Lalia: Reform has just started, and has impacted much more in the protection part of social security – not so much in the annuity or pension part. But we are analysing what can be the opportunity, and how to help build a sustainable pension system in Brazil.
World Finance: So how well covered are people in Brazil, and how is the industry structured?
Alfredo Lalia: In fact, Brazil works with the traditional three pillars of pension: the public sector, companies trying to help individuals, and individual savers.
So, public sector is as I told you, very generous. So people have the feeling that they are well covered.
But you know that with the ageing population, the changing demographics, and the reduction of active work to finance retirement, you need to trust more in the second or third pillar. And each individual should have his pension plan to have a good retirement future.
World Finance: Well according to recent research conducted by yourselves, 41 percent of the population think they’re inadequately prepared for a comfortable retirement. Why is this?
Alfredo Lalia: Well, I think it’s a challenge to work with consumption, and to save for the future.
So it’s easy to say that, ‘You know, you need to save for the future.’ But the day-by-day consumption fights against this need.
And financial planning is not so common in Brazil: Brazil has only had 20 years of a low inflation environment. So this generation is not used to thinking in the long term, because they’ve lived through a hyper-inflation period. It’s been very difficult to preview what will be the value of your money in one month – so planning for 20, 30 years is not so common.
So this is changing: you have a new generation, born in a low inflation environment. But financial planning is a key thing that we need to develop in Brazil.
World Finance: So what services does HSBC Fundos do Pensão offer to combat these challenges?
Alfredo Lalia: Providing this financial planning. We try to go individual by individual and help them to analyse that they are prepared or not. How they are investing, how they are funding their future life.
So we have specialist team to provide this service to help people to think about the future and decide what they need to do today to have a good retirement period.
World Finance: Well finally, looking towards the future now, and how do you envisage the Brazilian pension landscape evolving?
Alfredo Lalia: I think we are a young population yet so, with this financial planning, the population understand much more the pension system, and all the tax benefits that a pension plan has in Brazil.
I see a big role – the main industry has had growth in double digits in the last 15 years, and probably we will keep this path of growth. A good future.
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Greece’s bailout conditions leaked to press
In the run up to a meeting on Saturday June 27 in which EU leaders are set to meet once again to work out a deal for Greece, a blueprint for bailout conditions by its creditors has been leaked to the Financial Times. The country has been perpetually stuck in its eleventh hour, with a deal to unlock emerging funds to prevent a default yet to be concluded.
The structure of value added tax on goods has also caused friction
The leaked document, which outlines what economic reforms creditors wish to see before any new funds are extended to the debt ridden country, comes after Greece’s reform proposals were turned down recently. According to creditors, it was too heavy on taxes and light on spending cuts, making it too recessionary.
A major point of contention has been pension reforms. Greece, in its now discarded plan, proposed to raise the retirement age to 67 by the year 2025, while the leaked document shows that its creditors are pushing for Athens to raise the age of retirement by 2022.
The structure of value added tax on goods has also caused friction, with creditors initially pushing for a two tier VAT system to be implemented, with most goods falling under the higher tier of 23 percent added tax. The new document now shows creditors ceding to the Greek’s proposal for a three tiered VAT system, with certain goods and services such as books, medicines and theatre placed in a “super-reduced rate” of six percent. They also suggested corporate tax be raised from 26 to 28 percent, in contrast to Greece’s proposal to raise it to 29 percent.
Collateral damage: China’s property market gets reality check
China is bailing out the country’s heavily indebted local governments, relying on trusted methods to keep its financial system stable despite promises to allow market forces to play a greater role
Trade Promotion Authority legislation passes Senate
The Senate has finally approved the Trade Promotion Authority legislation, which puts President Obama’s trade-push back on course and brings an end to longstanding disagreements between the Republicans and Democrats. The approval of the TPA, or “fast-track”, as it is sometimes known, means that the president can more easily approve trade deals, and paves the way for the passage of the Trans-Pacific Partnership deal.
The vote brings the Obama administration one step closer to finalising the
TPP legislation
A procedural vote on Tuesday to overturn a filibuster was approved 60 to 37, and the same margin again voted to pass the bill the following day. The amendment means that Congress can only vote for or against finalised trade motions, and leaves it without the power to make amendments. The legislation means also that Obama can pass trade deals far more quickly, without the same degree of opposition that has so characterised Congress of late.
The vote brings the Obama administration one step closer to finalising the TPP legislation, which, if approved, would lift a series of barriers on both trade and foreign investment. The deal would include neighbouring Canada, as well as Mexico, Chile, Peru, Australia, New Zealand, Japan, Malaysia, Singapore, Brunei and Vietnam, which together play host to 800 million people and make up 40 percent of global trade.
The implications of the deal are far-reaching, and include matters such as environmental preservation and workers’ right, as well as industry-specific regulations, yet discussion on the points has come up against criticism for its lack of transparency. The approval of TPA effectively guarantees that Congress will vote on the TPP deal soon, though whether it will be approved is uncertain.
