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Emerging Market Briefs
By Scott B. MacDonald
Brasil Telecom Launches ADR: In mid-November, 2001 Brasil Telecom, with an estimated market capitalization of $1 billion, listed its ADR on the New York Stock Exchange. It is the first Brazilian telecoms company to list since the 1998 privatization of Telebras, the national carrier. Brasil Telecom is the third largest fixed line operator in Brazil, covering 33% of the nation’s territory and 23% of the population. What is significant about the Brasil Telecom launch is that investors appear to have decoupled Brazil and Argentina. Since the dark days following 9/11 Brazilian telecoms have enjoyed a strong rally. Now with Brasil Telecom’s ADR, that trend is continuing.
Egypt — Doing What It Takes: On December 12, 2001 Egypt devalued its currency, the pound, by about 8%. With this action, the Egyptian pound will trade in a band of 4.5 pounds per US dollar +/-3%. We regard this as another encouraging sign that the Egyptian government and the central bank are adopting a gradually more realistic approach to exchange rate management. Simply stated, the devaluation will help reduce the need for foreign exchange rationing to defend the currency peg due to additional balance of payments pressures deriving from the impact on tourism of the events on September 11. The IMF currently has a delegation in Cairo. Prime Minister Atef Obeid met with the delegation yesterday, and it was reported that the two sides are discussing an IMF program that would make it easier for Egypt to cope with the financial consequences of the events of September 11.
Iran — Improving Creditworthiness: In November Moody’s has placed Iran’s B2 ratings on review for a possible upgrade. The key reason behind the rating agency’s decision is the significant improvement in Iran’s external debt position. Iran has benefited from higher oil prices, while the government has maintained prudent fiscal policies, all of which strengthened the country’s foreign exchange reserves. Iran also got points for creating an Oil Stabilization Fund (OSF), which is expected to help it during a downturn in oil prices. Moody’s also noted that Iran continues to face challenges, including a powerful and highly conservative opposition and growing public disenchantment of the inability of the government to move ahead with economic and political liberalization in the face of this opposition. Moody’s stated that it will also take into consideration "contingent liabilities that could arise from the banking sector and state-owned companies, on the prospects for subsidy reforms and trade liberalization, and on the depth and effectiveness of economic management."
Korea — Against the Tide: South Korea’s credit ratings are going against the tide of downgrades usually associated with recessions. In November, Standard & Poor's upgraded Korea from BBB to BBB+, the first such move in two years. Although economic growth is slowing, S&P gave Korea credit for making headway with asset sales (Daewoo Motor and Korea Tobacco & Ginseng Corp.), having foreign exchange reserves now in excess of $100 billion and a budget deficit of less than 1% of GDP. According to the rating agency, all of this "will probably allow Korea to avoid a recession during the current global downturn." S&P also noted that risks remain, in particular the government’s ownership of "most of the financial sector". Moody’s rates Korea Baa2, with a stable outlook.
Malaysia — Slower Growth Numbers: The global economic slowdown is taking its toll everywhere, including the highly-export oriented Malaysia. Posting a dynamic 8.3% real GDP growth rate in 2000, the Malaysian economy is struggling to stay in positive territory for 2001. Exports plummeted by 21% in September from a year earlier, while third quarter GDP actually contracted by 1.3%. According to the Malaysian Institute of Economic Research (MIER), growth is now expected to be 0.3% for 2001, down from an earlier forecast of 2.2%. MIER also cut its growth forecast for 2002 from 4.5% to 3.2%. Malaysia’s central bank also announced that growth will be lower at around 1%-2% for both years. The central bank governor Zeti Akhtar Aziz stated that to counteract the slower growth, the government will spend an additional M$4.3 billion (US$1.1 billion) on infrastructure projects in addition to a M$3 billion stimulus package announced in March 2001.
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Editor: Dr. Scott B. MacDonald, Sr. Consultant
Deputy Editor: Dr. Jonathan Lemco, Director and Sr. Consultant
Associate Editors: Robert Windorf, Darin Feldman
Publisher: Keith W. Rabin, President
Web Design: Michael Feldman, Sr. Consultant
Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Uwe Bott, Jonathan Lemco, Jim Johnson, Andrew Novo, Joe Moroney, Russell Smith, and Jon Hartzell
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