How Real Is the Privatization Plan for Russia?

The Russian government has introduced an expanded state asset sale program and has extended it through 2017, as it seeks to reduce the state’s role in the economy and balance the budget. The expanded plan, however, does not mention any company from the list of Russian state corporations that represent a significant part of the […]

Is the Tandem One Animal or Two? Medvedev vs. Putin on the Record of Reform

There’s a lot of talk lately about which member of the Tandem will run for president in 2012.  Most foreigners are hoping it will be Medvedev, the smiling, twittering “modernizer” who’s been talking up a storm about improving Russia’s investment climate, and many commentators think the uncertainty is affecting the decisions of international firms and […]

Brazil: Government Announces New Decree

On March 29, the government announced a new decree in the Official Gazette, increasing the financial-operation tax (IOF) on overseas loans—corporate loans and debt sold abroad by banks and companies. The tax was raised to 6% from 5.38% on international bond sales and extended to transactions with a maturity of up to 360 days from the previous 90-day limit. Brazil’s central bank said the increase was aimed at curbing foreign currency loans with a maturity longer than three months; which have grown around 39% since the end of 2008. In addition, the local newspaper Folha de S.Paulo, asserted that since January 2011, the inflows of U.S. dollars into the country had reached almost US$35 billion, reflecting an increase of 42% with respect to 2010’s total inflows.

Highlights from the CEPR Conference on Financial Reform

Yesterday, the CEPR hosted “The Future of Regulatory Reform”, a conference targeted at central bankers, financial regulators and academics. The discussion was wide in scope, ranging from resolution regimes to fair value accounting and shadow banking. I was pleasantly surprised by the candour of the participants, and in particular, the regulators. There was a palpable admission of failure and pre-crisis regulatory capture, and significant concern and uncertainty about the economic effects of the much needed reforms under debate. Carol Sergeant, CRO of Lloyds TSB and a former regulator, likened the process of regulation to pulling giant levers which stimulate both desirable outcomes and unintended consequences. This heightened concern about the unintended consequences (including the displacement of commercial banks by shadow banks) as well as the harsh light of realism, was most palpable in comments from Jochen Sanio and José María Roldán from the BaFin and Banco de España, respectively. Below we highlight some points that emerged from the panel discussions and academic commentary.

Foreign Credit for MENA?

Although lending by foreign banks to the region is much slower than in the boom years, the increase in loans in Q1 is a sign of stabilization. BIS data show that net lending from European banks to the MENA region crept up in Q1 2010, led by loans to Saudi Arabia and Qatar, which received US$8 billion and US$3 billion, respectively. We see it as no coincidence that these countries also account for the most significant lending growth in the GCC. The availability of foreign funds, along with continued government fiscal expansion, seems to have helped ease domestic credit conditions, support domestic liquidity and fuel a revival in equity markets early in the year. We expect that the pace of inflows cooled in Q2 2010 given the generalized correction in emerging and frontier markets and selloff in local markets, but on aggregate credit should continue to flow to those countries that have the strongest domestic demand, either private or government financed.

RGE’s Wednesday Note – Obama’s Recent Regulatory and Fiscal Proposals

This week, RGE tracked a series of events that revealed the Obama administration’s juggling act: an effort to maintain growth, tame the fiscal deficit and garner the congressional support needed to implement policy. Democrats’ loss of the Massachusetts Senate seat raised questions about President Obama’s ability to take forward reforms on financial regulation, fiscal austerity and health care. Though Obama’s response was prompt and decisive, with proposals for financial-sector reforms that surprised markets and plans to address the ballooning fiscal deficit, his waning political capital will stand in the way of achieving his fiscal, social and economic goals.

CoCos: No Antidote to Go-Go Boom-Bust Cycles

Contingent capital (CoCa) can reduce the probability and costs of future bailouts, but to do so, it would have to represent a significant portion of funding, based on an RGE case study of HBOS, the British banking group now owned by Lloyds Banking Group. A CoCa-heavy capital structure could make banks’ cost of capital prohibitively […]

Latin American CDS: Fully Recovered, What are the Risks?

Editors Note: The Following RGE premium content, “Latin American CDS: Fully Recovered, What are the Risks?” is available to paid clients. Bertrand Delgado, Elisa Parisi-Capone and Alejandro Rivera, take a close look at Latin America’s 5 year CDS fundamental and counterparty risk dynamics.  They examine the extent to which counterparty risks explain the sharp movement […]

If Infrastructure Investment is Hot, Why Can’t Funds Raise Money?

The financial media describes infrastructure investment as an emerging asset class for good reason. Several major pension funds, such as CalPERS and the Ontario Teachers’ Pension Plan, have allocated a portion of their portfolios to infrastructure investments. As the interest in infrastructure investment has grown, so has the number of funds investing in the sector. Preqin, a London-based research firm tracking unlisted infrastructure funds, stated in its February 2009 report that 86 unlisted infrastructure funds were seeking an aggregate of US$92.3 billion, roughly double the US$46.7 billion put forth by firms at the same point one year earlier. 

Characteristics of Infrastructure Investment

– Long-term assets;

– High barriers to entry, or even monopolies;

– Regular/steady cash flows;

– Inflation-adjusted revenues;

– Low correlation to other asset classes in a portfolio.

Why Infrastructure Investment is Hot