Sri Lanka defaults on entire $51 billion external debt

COLOMBO - Crisis-stricken Sri Lanka defaulted on its $51 billion external debt on Tuesday, calling the move a "last resort" after running out of foreign exchange to import desperately needed goods.

The island nation is grappling with its worst economic downturn since independence, with regular blackouts and acute shortages of food and fuel.

Sri Lanka's finance ministry said in a statement that creditors, including foreign governments, were free to capitalize any interest payments due to them from Tuesday or opt for payback in Sri Lankan rupees.

"The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic's financial position," the statement said.

It added that the immediate debt default was to ensure "fair and equitable treatment of all creditors" ahead of an International Monetary Fund assisted recovery program for the South Asian nation.

The crisis has caused widespread misery for Sri Lanka's 22 million people and led to weeks of anti-government protests.

International rating agencies had downgraded Sri Lanka last year, effectively blocking the country from accessing foreign capital markets to raise much-needed loans to finance imports.

Sri Lanka had sought debt relief from India and China, but both countries instead offered more credit lines to buy commodities from them.

Agence France-Presse

Oil slips again after IMF cuts global growth forecast

NEW YORK, United States – Crude oil prices slumped Tuesday after the International Monetary Fund (IMF) slashed its world economic growth forecast, stoking fresh fears about the strength of crude demand.

US benchmark West Texas Intermediate (WTI) for February sank $2.30, or 4.7 percent, to $46.39 a barrel, not far from its lowest level since March 2009.

Brent North Sea crude for delivery in March, the international benchmark, dropped to $47.99 a barrel in London, down 85 cents from Monday’s closing level.

“Crude oil prices remain under heavy pressure with WTI front-month futures retreating… following news that the IMF cut its global growth forecast by (the) most in three years,” said Sucden analyst Myrto Sokou.

The IMF reduced its global economic growth forecast for this year to 3.5 percent and 3.7 percent in 2017 on the back of weaker momentum in nearly all major economies except the United States.

Both estimates were 0.3 percentage point lower than in its October forecast.

Moody’s meanwhile lowered its 2015 average price estimates to $55 a barrel for Brent and $52 for WTI. It projected both contracts would rise in 2016, to $65 and  $62, respectively.

“We see no near-term catalysts that would change the supply/demand equation,” credit ratings firm Moody’s said in a market note.

source: business.inquirer.net

Ukraine plane crash hits global stocks

LONDON – Global stock markets slid on Friday after the crash of a Malaysian Airlines jet which killed 298 people over rebel-held eastern Ukraine, amid signs it was hit by a missile.

Russian shares and the ruble sank, as the disaster dramatically raised tensions between the Kremlin and the West.

The investment climate was already heavily clouded by broadened US and EU sanctions linked to Ukraine.

Sentiment was also rocked as Israel launched a ground invasion of Gaza, with tanks and warplanes sweeping into the area in a bid to stop rocket fire.

The heightened geopolitical tensions sent traders fleeing risky assets such as equities and into safer investments like gold, US bonds and the yen.

European equity markets, which had already fallen late on Thursday as news of the crash broke, extended losses in late morning Friday deals.

London’s benchmark FTSE 100 sank 0.63 percent to 6,696.85 points, despite gains for drugmaker Shire Pharmaceuticals which agreed to a $54-billion takeover from US giant AbbVie.

Frankfurt’s DAX 30 index shed 0.83 percent to 9,672.96 points and the Paris CAC 40 lost 0.37 percent to 4,300.13. Milan stocks dropped 0.42 percent and Madrid decreased by 0.94 percent.

The euro meanwhile hit a February low against the safe-haven Japanese currency at 136.71 yen.

“Thursday’s tragic Malaysian Airlines plane crash has spooked financial markets as tension increased between Russia, Ukraine and the West,” said Laith Khalaf, head of corporate research at brokerage Hargreaves Lansdown.

“Geopolitical tension was also elevated as Israel launched a ground offensive into Gaza.”

He added: “Investors fled shares for the perceived safe haven of US government bonds and gold, while the price of oil also climbed.”

IMF warning on asset prices

Meanwhile, the IMF said that the Ukrainian economy was being unexpectedly badly damaged by the crisis, and said it now expected the economy to shrink by 6.5 percent this year instead of 5.0 percent.

In Paris, the head of the International Monetary Fund, Christine Lagarde, warned that European asset markets were perhaps too high relative to fundamental economic indicators, and also said that unduly low inflation could badly damage European growth..

In Asia, markets mostly fell after the disaster sparked geopolitical tensions.

Hong Kong dropped 0.28 percent, Tokyo sank 1.0 percent and Seoul slid 0.07 percent, while Sydney ended 0.17 percent higher.

Airline stocks in Asia retreated, led by a slump in already under-pressure Malaysia Airlines as the company faced up to its second major disaster in four months.

Shares in Malaysia Airlines tumbled by as much as 17.8 percent on the news, which comes months after Flight MH370 went missing with hundreds on board in a remote part of the Indian Ocean.

In Moscow, the ruble-denominated Micex stock index fell by 1.67 percent, and the dollar-based RTS index was down 2.23 percent.

The ruble meanwhile fell to 35.1 to the dollar and to 47.5 to the euro.

source: business.inquirer.net

Recovering Dubai faces billions of maturing debt

DUBAI — As debt-laden Dubai’s economic recovery continues, with grandiose projects making a comeback, the emirate faces some near-term maturity of debt racked up during pre-crisis years but the prospects are not gloomy, analysts say.

Dubai is likely to manage the forthcoming obligations, part of total debt amounting to 100 percent of its gross domestic product, according to Masood Ahmed, the Middle East director at the International Monetary Fund.

“Yes, it can manage,” he told AFP, highlighting the need to be open about the process.

“There is a substantial amount of debt that is coming due in the next few years, and it will be important to manage proactively that process. Information and communication with potential market participants will be a key part of this,” he said.

In recent years, Dubai has restructured billions of dollars of debt, mainly that of its Dubai World group, which rocked global markets in 2009 when it signalled that it could not repay some $26 billion of debt.

“There is likely to be another round of restructuring from 2014 to 2016, when much of Dubai’s borrowing to restructure the first round of debt from 2009 will mature,” said Monica Malik, chief economist at EFG-Hermes Emirates investment bank.

That “includes loans from Abu Dhabi and the UAE central bank, which should be rolled over easily,” she said.

Deep-pocketed Abu Dhabi is a fellow member of the seven-state United Arab Emirates and stepped in when Dubai was battling to solve Dubai World’s debt problems.

But Dubai World later proved to be only the tip of the iceberg.

Dubai and its government-related entities (GREs) had accumulated some $113 billion of debt, with $36.5 billion coming due next year only, according to EFG-Hermes.

But $20 billion of that is owed to the UAE central bank and the government of Abu Dhabi.

“We expect this to be rolled over, making overall 2014 repayments manageable,” said Malik.

Dubai has $9.4 billion of debt maturing in 2013, compared with $14.6 billion in 2012.

Among the positive signs have been announcements by the government and GREs of deals to restructure some due debt, or repayment of maturing bonds.

Earlier this month, Dubai’s government said it repaid 3.34 billion dirhams ($910 million) of bonds that came due in April. The redeemed bonds were part of a 15-billion-dirham bonds programme issued in 2008.

“This repayment reaffirms Dubai government’s commitment to deal with its repayment obligations in a proactive manner,” said Abdulrahman al-Saleh, director general of Dubai’s department of finance.

“It also strengthens the government’s resolve to honour all its financial obligations on time,” he said.

Dubai Group, a unit of ruler Sheikh Mohammed bin Rashid al-Maktoum’s Dubai Holding investment arm, also said this month it was nearing a deal with its creditors to restructure $10 billion of debt after three years of talks.

“For instance, where a full repayment cannot be made, we expect a continuation of the trend established over the past one-two years of a partial capital repayment coupled with a rollover of the remaining debt,” Malik said.

She said the fixed-income market is expected to be the main source of financing, because local banks are constrained by central bank-imposed exposure limits and many European banks continue a “retrenchment” from the Middle East.

Dubai’s economy grew by just under four percent in 2012, and is expected to grow by little over four percent this year, Ahmed said.

“We see a process of recovery that is quite broad based,” he said, citing growth from “logistics, trade, and also from real estate.”

“In that sense, the Dubai economy is doing better,” he added.

Dubai’s non-oil trade surged by 13 percent in 2012 to $336 billion. Its airport is now the world’s second busiest for international travel, handling 57.68 million passengers in 2012.

A number of grandiose property and theme parks projects have been announced recently, reminiscent of the five-year heyday of rapid real estate growth in the glitzy emirate that preceded the 2009 crash.

Real estate and rental prices have also been surging after being chopped by a half during the crisis. Real estate agents are back on their phones calling owners and promising wealthy cash buyers.

But such euphoria triggers warnings of being carried away.

“As we embark now on these mega projects, this ambitious expansion plan needs to be executed in a measured way that is gradual and limits additional risk taking for the still highly-indebted GREs sector,” Ahmed said.

George Abed, director of the Institute of International Finance, warned of repeating the mistakes of the past.

“We think the lessons of the debt crisis have been largely absorbed but in some quarters we hear sometimes a note of euphoria, perhaps, and excitement, exuberance that should be cautioned against,” he was quoted by The National daily as saying.

source: business.inquirer.net

Greek leaders ready to back austerity deal

(Financial Times) -- A dispute over pension cuts stalled talks last night between leaders of Greece's fractious national unity government on tough new austerity measures, one of the last hurdles to be cleared before eurozone officials can sign off on a €130B ($172B) bailout and save Athens from a messy default. However, officials said they were still confident of reaching a deal by the morning.

A statement by Lucas Papademos, the technocrat prime minister, said there was "broad agreement on all the issue except for one which demands further elaboration".

The talks between Papademos and the heads of the three Greek political parties in his cabinet included €3B ($4B) in new spending cuts contained in a 50-page document distributed to political leaders in the morning. The full cabinet is due to rubber-stamp the deal today.

After seven hours, Papademos called in the troika -- mission chiefs from the European Commission, European Central Bank and International Monetary Fund who drafted the new medium-term fiscal programme with the Greek finance ministry -- to help break the deadlock. Greece still needs to find about €300m of savings to close a €3bn program of spending cuts to keep this year's budget on track.

Papademos earlier held separate telephone consultations with Christine Lagarde, IMF managing director; Olli Rehn, the EU monetary commissioner; and Jean-Claude Juncker, chairman of the eurozone finance ministers, who are due to discuss the Greek program this evening.

People familiar with the negotiations said Antonis Samaras, the conservative leader, had raised objections to cuts in supplementary state pensions, while former premier George Papandreou refused to discuss the alternative of cutting primary pensions. The pensions issue is seen as critical as elderly, low-income Greeks have been hit hardest by the deeper than expected recession.

George Karatzaferis, the rightwing leader and junior coalition partner, left the talks. It was not clear whether he would return to join the negotiations.



There has been mounting frustration in other European capitals, including Brussels, where officials had hoped to get a deal agreed last weekend so that they could quickly execute the central pillar of the deal -- a €200bn bond swap that will see private Greek debt holders lose half their holdings, wiping €100bn off Athens' €350bn debt pile.

Once the deal is agreed, the focus of the Greek drama will turn to Paris, where the lead negotiators for private bondholders were to meet with investors to begin preparations for the debt restructuring, and to Brussels, where eurozone finance officials will meet on Thursday to cobble together enough money to keep Greece afloat for the foreseeable future.

Debate over the structure of the new bail-out package continued to intensify behind closed doors as eurozone leaders attempted to construct a programme that would both keep the total in new rescue funds at €130bn and reduce Greek debt levels to 120 per cent of economic output by 2020.

Both those goals were signed off at a summit in October, but Greece's worsening budget outlook has forced finance ministry officials to rework the package to stay within those parameters.

There was growing consensus that sufficiently reducing Greece's debt level, which is now at about 160 per cent of economic output, would require more than the agreed €100bn cut in private debt, with leaders' focus increasingly turning to the €40bn in Greek bonds held by the European Central Bank -- the largest of any single investor.

According to several senior eurozone officials, the ECB has not yet agreed to help a revised bailout plan, but it was studying whether it could forgo profits on the €40B ($53B) portfolio -- which would pay out about €55B ($73B) if taken to maturity -- by transferring the bonds to the eurozone's bailout fund, the European Financial Stability Facility, at the price it originally paid for them.

Another plan being considered would have Greece buying the bonds directly from the ECB at the depressed price, using EFSF funds or bonds to pay for them. Either scheme would require eurozone governments ensuring more EFSF funds to buy the Greek bonds -- which may prove politically impossible.

While senior officials at EU institutions and eurozone member states were hoping the ECB would agree to forgo its profits, which would knock as much as €15B ($20B) off of Greece's debt load, four officials with direct knowledge of the talks said such a deal had not yet been agreed.

Without ECB accession, officials worry it will be impossible to get Greece's debt down to levels approved by the International Monetary Fund, which has estimated that the private debt restructuring alone will only get Athens' debt to just under 130% of economic output by 2020. Without IMF approval, the €130bn in new bail-out funds cannot be approved.

Standard & Poor's, the debt rating agency, weighed in on the side of the IMF on Wednesday, saying the restructuring of privately held debt was not enough to make Greece's debt load sustainable.

"Because only a small subcomponent of investors are actually taking the haircut and the official sector [ECB] is not, or only partially, then the reduction . . . is probably not sufficient debt relief to make debt sustainable," said Frank Gill, an S&P analyst.

article source: http://edition.cnn.com/2012/02/08/business/greece-talks/index.html?hpt=hp_t2