Emerging Market Briefs
By
Scott B. MacDonald
Argentina
– Growth At Last: For the first time in 17 quarters Argentina
experienced real GDP growth. Q2 real GDP expanded by 5.4%.
Coming after a 10.9% contraction in 2002, this was long awaited
good news. While manufacturing and construction were key factors
in the growth spurt, the main driver was fixed asset investment,
which grew 20.6% during the quarter. Exports were up 6.4%
and imports were up 15.9%.
Brazil – Fitch Takes A Positive Look: On June
3, Fitch changed its outlook for its B rating on Brazil from
stable to positive. The outlook change was based on optimism
that President Luiz Inacio Lula da Silva will succeed with
policies aimed at maintaining payments on the country’s
$207 billion in external debt. Since President da Silva, more
popularly known as “Lula”, won the October 27, 2002
elections the currency has risen close to 30% and stocks and
bonds have rallied.
Hong
Kong – Unemployment Blues: 2003 is proving to be
a tough year for Hong Kong. The economy has failed to take
off, having been beaten down by a combination of SARS and
a weak global economy. In May, unemployment climbed to a record
8.3%. The main culprit was SARS, which cut into shopping and
tourism. This, in turn, saw hotels, restaurants and stores
fire employees. Unemployment was 7.8% in April. The expectation
is unemployment has yet to peak – it could climb to 9%
before falling to less painful levels.
Malaysia – Industrial Production Up: In April
Malaysia’s industrial production expanded at its quickest
rate in 28 months. According to the Department of Statistics,
factories, mines and power utilities increased production
by 11.8% from a year earlier. The government had earlier launched
a $1.9 billion stimulus package to help boost the economy,
following a slump in exports of semiconductors and other goods.
Electronics exports, which account for close to half of GDP,
fell for a fifth month in April, compared to an overall rise
of 5.7% in exports. Real GDP in Q1 was 4%, the slowest rate
in a year. Although there remains some degree of caution,
Prime Minister Mahathir is asserting that real GDP growth
will be in excess of 4.5%.
Romania – Underrated: Following Bulgaria’s
two-notch upgrade by Moody’s in early June, we regard
Moody’s rating for Romania as too low. The Balkan country’s
debt ratios are comparable to many low BBB rated credits and
the EU reform program is moving ahead. Relations with the
IMF are positive.
Singapore
– Exports Fall: Singapore’s exports in May fell
by 6.8%, largely due to a poor performance by electronics
and the SARS virus causing slower sales to China. Total exports
reached $5 billion. According to the city-state’s trade
promotion agency, SARS is curbing demand for computer chips
and other components to China and other Asian markets, aggravating
the impact on Singapore’s economy from a downturn in
retail and airline businesses. Singapore’s real GDP is
thought to have shrunk 1.9% in Q2. Although the outlook for
the electronic industry remains gloomy, Singapore usually
sees a seasonal pick-up in exports to the United States in
Q3, when suppliers ship goods for Thanksgiving and Christmas.
The United States accounts for a fifth of Singapore’s
exports.
Venezuela – How Grim Is It?: According to the
Venezuelan government, the country’s economy is in bad
shape. Bad shape is defined as an expected 10.7% contraction
in real GDP for 2003. Finance Minister Tobias Nobrega announced
on June 22, that Q2 will see another contraction, following
a 30% contraction in Q1 2003. In 2002, the economy declined
by 8.9%. The root cause of the dismal economic news is a combination
of ongoing political strife between the leftwing Chavez administration
and its center-right opposition, which resulted in an extended
and highly damaging oil strike.
It is estimated the two-month long strike lost the government
$7 billion in lost tax revenues. This, in turn, has caused
the government to rely on borrowing in domestic markets. Domestic
debt is now estimated at around $9.4 billion, close to 20%
of all debt. In a high interest rate environment, this represents
an ongoing bleeding of funds. In addition, government economic
policy has not been stellar and the foreign exchange controls
that were imposed earlier run the risk of strangling the private
sector.
Although oil production appears to be reaching more normal
levels and Venezuela should be able to service its external
debt repayments for 2003, financial conditions will remain
tight and dark clouds clearly hang over the economy. Indeed,
the IMF expects tougher conditions and is estimating that
2003’s real GDP will be around a 17% contraction. Rounding
out the economic picture, unemployment is estimated to be
somewhere between 20-25 percent of the workforce. This dire
situation is reflected by the fact that around 2,000 private
manufacturing companies closed during the first quarter of
2003.
Nor does the political situation promise much. Although Chavez
and the opposition have come to a broad agreement on how to
proceed to a referendum for new elections, Venezuelan society
is highly polarized and tensions remain high. Complicating
matters further, the opposition is badly fragmented. This
would be to President Chavez’s advantage as he retains
a steady bloc of support of around 30 percent of the population.
All of this suggests a great chance for more political turmoil
in the months ahead. While we do not see a default on the
country’s external debt looming in 2003, as foreign exchange
reserves remain adequate and oil prices remain relatively
high, Venezuela’s creditworthiness remains overshadowed
by political concerns.
