Archive for the ‘business’ Category

Puerto Rico: Junk bond status

Thursday, February 6th, 2014

Only about 1 percent of American municipalities have been given a junk rating by S&P:

Puerto Rico GO Bonds Inch Higher After S&P Downgrade
A Sign That Some Buyers Are Relieved To Have The Downgrade Behind Them

S&P on Tuesday lowered Puerto Rico’s general obligation bond rating to double-B-plus from triple-B-minus, stripping the island of its investment grade rating. The rating firm said it cut the rating because of Puerto Rico’s “reduced capacity” to borrow and the contraction in its economy in all but one year since 2006. It kept the island’s ratings on watch and warned of further cuts if the island is unable to raise money.

Puerto Rico has also been weighed down by large pension obligations, a 15% unemployment rate and big losses in the value of some of its debt. But the Puerto Rico government has been taking steps to bolster the economy and improve its fiscal outlook by overhauling pensions and raising taxes.

Despite the benign response to the downgrade, the cut adds pressure on Puerto Rico to shore up its finances with a near-term borrowing, analysts said. Puerto Rico, which has $70 billion of debt, has been able to put off borrowing in recent months, but its flexibility is fading, said Daniel Hanson, a credit analyst at Height Securities LLC.

Island officials have been planning a bond offering of some $2 billion in coming weeks, according to people familiar with the matter. The officials have been weighing how to raise money with offerings backed by sales taxes or the island’s general fund, or a deal structured by hedge funds and other distressed investors who may demand yields near 10%.

[T]he yields it will have to pay of up to 10% could likely scare off investors and further reduce confidence in Puerto Rico’s finances.

Moody’s and Fitch are expected to be next with their downgrades.

The White House Says There Are No Plans To Bail Out Puerto Rico

Gov. Alejandro García Padilla is finally trying to cut the budget and reduce the deficit to $75 million, something he’s been avoiding, considering how his predecessor, Luis Fortuño, was not re-elected for doing just that.

To add to García Padilla’s woes, a misspelling of his name caused a flurry of tweets under the hashtag #GobiernoPandilla (gangster government), including the news that the administration-appointed telecommunications board (Junta Reglamentadora de Telecomunicaciones) granted contracts to partisans, and that the University of Puerto Rico’s administrators’ payroll increased by 35%:

Monumental payroll increase UPR for #GobiernoPandilla’s #FriendsOfTheHeart

No word as to whether García Padilla, commonly referred to as Agapito (for Alejandro GArcía PadIlla + “to“), has considered laying off his five relatives working for the government.


Argentina: Chronicle of a default foretold, continued

Friday, January 31st, 2014

As Latin America’s Leaders Hail Democracy In Havana, Cuba’s Beatings Intensify, but rather than try some networking at Davos, Cristina visited with what’s left of Fidel,

while Argentina Loses $1.25 Billion of Foreign-Currency Reserves
Kirchner’s Government Tries to Head Off Recession

Argentina’s central bank has shed $1.25 billion of its dwindling foreign-currency reserves since it devalued the peso last week, even as the currency came under renewed pressure on Thursday.

he devaluation has so far failed to achieve what is believed to be its main goal: to close the confidence-busting gap between the official and black-market rates. The gap has narrowed in recent weeks.

The bigger the gap between black-market and regulated rates, the more the Argentine public fears the official exchange rate is overvalued and vulnerable to another devaluation.

Another measure aimed at deflating the black market also appears to be falling flat.

Starting Monday, Argentines were allowed to buy limited amounts of dollars for savings for the first time in about 18 months. The tax agency said it had authorized purchases of more than $137 million in dollars through Thursday afternoon.

However, Argentines opted to pay a 20% tax and withdraw $125 million from the banks instead of taking advantage of attractive interest rates and tax breaks for dollar deposits, the tax agency said. Many people still remember the 2002 crisis, when the government forcibly swapped dollar savings for devalued pesos.The Kirchner administration has borrowed more than $29 billion since 2010 from the central bank to pay its creditors, while government fuel imports and falling gold prices have also dented reserves.

If that money doesn’t stay in the banks, the central bank will likely take additional measures to stem dollar outflows. The central bank could takes losses of between $8 billion and $9 billion to individuals this year under the measure, according to estimates from BNP Paribas.

The trend has some investors and Argentines wondering if the country might struggle to pay its foreign debt and buy enough imported goods to keep its economy going.

As you can tell from the title of this post, I consider it a certainty.

Prior post: Argentina: Chronicle of a default foretold


Argentina: Chronicle of a default foretold

Friday, January 24th, 2014

Subroto Roy sent this article, Argentine Default Chaos Relived as Blackouts Follow Looting, which describes the deja-vu conditions as the country is about to default, again, this time on its $50 billion foreign currency obligations,

Investors are bracing for the possibility of another default. The country’s average dollar bond yield of 12.4 percent is the highest among major developing nations after Venezuela. Trading in swap contracts that insure bonds shows investors see a 79 percent probability of a halt in payments over the next five years, a reflection in part of concern that Singer’s demand of full repayment on the securities he kept from the 2001 default will disrupt debt servicing.

“Over the next five years”, maybe, maybe earlier, as the Specter of Default Stalks Argentina. Argentina’s dollar reserves have now slipped below $30 billion.

Yesterday’s 8% devaluation (the largest one-day decline since the 2002 country’s default on its debt)

and falling reserves raise the specter of a deep economic crisis with inflation already believed to be running above 25% before the devaluation, the product of years of rapid increases in government spending financed in part by money printing. A weaker currency can aggravate inflation by reducing consumers’ purchasing power and pushing up the cost of imported goods.

The devaluation is also a major political blow to Mrs. Kirchner and her new economic team led by Mr. Kicillof. Shortly after her ruling coalition suffered a steep drop in support in October’s midterm congressional elections, Mrs. Kirchner replaced her finance minister, central bank chief, price control enforcer and economy minister. Less than a year ago, the president told the public it shouldn’t expect a devaluation under her watch.

Cristina Fernandez’s chief of cabinet Jorge Capitanich rushed to put lipstick on a pig, easing restrictions on the purchase of U.S. dollars Friday, by saying “The government considers that the price of the dollar has reached a level of convergence that is acceptable with the objectives of our economic policies.”

And the economy is pining for the fjords,

UPDATE:
As a result of government price-fixing, Argentinians bought less bread and more cookies in 2013. The price of flour went up by 65%.

A parting question: Where’s Cristina?

The BVI, China’s new tax haven

Wednesday, January 22nd, 2014

The Caymans are so 1990s:
China’s princelings storing riches in Caribbean offshore haven
Relatives of political leaders including China’s current president and former premier named in trove of leaked documents from the British Virgin Islands

The disclosure of China’s use of secretive financial structures is the latest revelation from “Offshore Secrets”, a two-year reporting effort led by theInternational Consortium of Investigative Journalists (ICIJ), which obtained more than 200 gigabytes of leaked financial data from two companies in the British Virgin Islands, and shared the information with the Guardian and other international news outlets.

In all, the ICIJ data reveals more than 21,000 clients from mainland China and Hong Kong have made use of offshore havens in the Caribbean, adding to mounting scrutiny of the wealth and power amassed by family members of the country’s inner circle.

Inner circle indeed. Go to link above to read the names of the people involved.

Of course, there’s no disclosure required from party leaders, so, who knows?

Libre’s initiative

Wednesday, January 8th, 2014

Rachel Campos-Duffy writes on Hispanics and the American Dream
A new initiative helps promote the ideals of liberty, hard work, and self-reliance.

But, despite the best efforts of those peddling racial grievances and “free stuff,” Hispanics remain stubbornly attracted to the ideas of economic liberty, self-reliance, and entrepreneurship. The notion of “making it in America” taps into deep-seated cultural pride for Latinos, who value the dignity that comes from work and earned success. And helping to foster these ideas is The LIBRE Initiative. Founded in 2011, it is the only conservative organization on the ground, in Hispanic neighborhoods, countering the efforts from the left by educating and empowering Hispanics to prosper on their own terms. Hispanics don’t want more programs to make them comfortable in their poverty. What Hispanics really want is more opportunity: the freedom to work, leave poverty behind, and rise into the ranks of the middle class and beyond.

This month, The LIBRE Initiative is launching the “Share the Dream” campaign, centered around four short, powerful video stories of real-life Hispanics who have achieved their American dream through hard work and sheer grit. My own family is a classic example. My dad, grew up poor in a copper-mining town in Arizona. The eleventh of 15 children, he learned to be resourceful and entrepreneurial at a young age, shining shoes at local bars and starting his own piñata business at the tender age of twelve. That work ethic helped him achieve a 32-year distinguished military career, a bachelor’s degree earned in night school while raising a family, and, eventually, a masters degree and a second career as a college instructor. Today, his four adult children all have post-graduate degrees, careers, and lives that have surpassed my father’s wildest dreams. All of this was accomplished in the span of two generations, and confirms my parents’ “only in America” motto.

Here’s Campos-Duffy’s video:

Follow LIBRE on Twitter.


Argentina: More price controls

Sunday, January 5th, 2014

Expect more shortages, black markets and inflation:
Argentina Launches New Price-Control Accord
New Program Sets Stage For Annual Wage Talks

The one-year program sets prices on 194 supermarket items including staples like milk, meat and pasta as well as discretionary items such as beer and ice cream.

I wonder if dulce de leche, coffee and mate are included.

The goverment doesn’t think of it as imposing uncompetitive prices; instead they call it “reversing unjustified prices.”

Yeah.

No matter what you call it, bad economic policy has consequences:

President Cristina Kirchner faces the same economic problems in the New Year as she did in 2013: low growth, rising inflation and foreign currency shortages.

The second highest rate of inflation in the Americas has also forced the Kirchner administration to ration the hard currency people and businesses can legally buy to prevent a run on the central bank’s foreign currency by inflation weary residents.

Even so, debt payments, fuel imports and capital flight gobbled up $12.7 billion in hard currency last year. Reserves have stabilized in recent weeks at a seven-year low of about $30.6 billion.

It’ll continue and worsen, for as long as the high government spending financed in part by money printing continues. Argentina will remain in the Troubled Currencies list for the foreseeable future.

Latin America: Free trade vs. Mercosur

Saturday, January 4th, 2014

David Lhunow writes on The Two Latin Americas
A Continental Divide Between One Bloc That Favors State Controls and Another That Embraces Free Markets

In 2014, the Pacific Alliance trade bloc (consisting of Mexico, Colombia, Peru and Chile) is slated to grow an average of 4.25%, boosted by high levels of foreign investment and low inflation, according to estimates from Morgan Stanley. MS +1.55% But the Atlantic group of Venezuela, Brazil and Argentina—all linked in the Mercosur customs union—is projected to grow just 2.5%, with the region’s heavyweight, Brazil, slated to grow a meager 1.9%.

Related: Is 2014 Latin America’s “big year”?


Mexico: Manufacturing jobs moving back to US

Friday, December 20th, 2013

It’s not all about wages:
Whirlpool Shifts Some Production to U.S. From Mexico
Move to Add 80-100 Jobs at Washing-Machine Maker’s Ohio Plant

Wages for production workers in Clyde, typically around $18 to $19 an hour, are roughly five times higher than in Monterrey. But Mr. Durham said the shift should lower costs overall. The Clyde plant is more automated and electricity costs are much lower than in Monterrey, he said. Whirlpool 500238.BY +2.12% also expects to save on transportation because the products won’t have to be shipped across a border before going into the company’s North American distribution network.

Since the beginning of 2010, companies have created more than 80,000 manufacturing jobs by moving production to the U.S. from foreign countries, estimated Harry Moser, president of the Reshoring Initiative, a nonprofit that advocates such shifts. The U.S. continues to lose other manufacturing jobs to offshore plants, but those losses now are being offset by inflows, he said, adding: “We’ve stopped the bleeding.”

As Mike Rowe points out, there are skilled job vacancies in what used to be called industrial arts.

But I also wonder, do the manufacturers expect an inflow of workers coming under immigration amnesty to depress salaries in the US? Even with the push for raising the federal minimum wage from $7.25?

Ecuador’s poor investment climate

Wednesday, December 18th, 2013

James M. Roberts writes about how the Chevron Trial Illustrates Poor Investment Climate of Ecuador:

Ecuador has one of the lowest rankings in the 2013 Index of Economic Freedom, published jointly by The Heritage Foundation and The Wall Street Journal; the country’s score has dropped steadily over the past two decades. Why? Independent measurements of its poor investment climate and weak rule of law explain in large part Ecuador’s downgrade to “repressed” status. As the Index notes, the judicial system remains vulnerable to political interference, with corruption further exacerbating institutional shortcomings.

It’s not going to improve, either.

Related: Blame Canada! Ecuadorians Win Right to Pursue Chevron North of the Border

BNDES: Brazil’s really big bank

Monday, December 16th, 2013

Juan Forero reports on BNDES, the Brazilian Development Bank, A bank that may be too big for Brazil.
BNDES:

  • has loaned a third of a trillion dollars since 2010, twice the amount the World Bank provided to about 100 countries combined
  • According to critics, most of the money goes to the country’s richest and most politically connected companies, among them JBS (the largest contributor to Dilma Rousseff’s campaign), construction giant Odebrecht, and now-broke Eike Batista’s EBX Group (which received $4 billion in loans).
  • Treasury funds and payroll tax revenue are used for loans.
  • In exchange for loans, BNDES has acquired a minority stake in dozens of private companies, giving the bank’s executives a say in their operations.

For all practical purposes, BNDS is acting as an investment bank, not a public institution focused on fostering social development, while maintaining its lack of transparency,

But analysts say there is another downside to BNDES’s big spending: It fans inflation, which has remained stubbornly high at just under 6 percent a year.

To keep it under control, the Central Bank on Nov. 27 raised its benchmark rate to 10 percent. Such a high interest rate — the highest of any developed country — is believed to crowd out the development of private lenders.

What could possibly go wrong?