I am in China this week to present our new Asia-Pacific Regional Economic Outlook in Shanghai. I remain as impressed as ever by China’s energy and vibrant growth, an impression that is reinforced every time I return to this country.
The recent debt restructuring of Dubai World and the last minute rescue of property subsidiary Nakheel, which issued one of the largest Islamic bonds three years ago, has shaken the confidence in Islamic finance owing to growing controversy about the interaction of shari’ah compliance and principles of investor protection in times of distress. As creditors are about to sign their settlement agreements in late April 2010 there remains general concern about whether shari’ah compliance might hamper an orderly dispute resolution under conventional law and about the legal enforceability of asset claims under the current Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) recommendations on sukuk structures. With the clear benefit of hindsight, this brief note speculates on possible outcomes of legal proceedings if the Nakheel sukuk had defaulted and discusses some potential implications for the wider sukuk market. The note also briefly touches upon the recent UK ruling in the Investment Dar case.
The Great Recession had strong though quite diverse effects on the developing and transition economies. One channel of transmission was through falling remittances, which impacted several, mostly small countries heavily dependent on remittances of migrants to the US, Western Europe and Russia; in contrast, remittances from the Gulf countries to South Asia and the Middle East did not experience a similar downward trend. The financial shock was severe, mainly for middle-income “emerging” economies, but it was short, thanks to the largest Keynesian policies ever adopted in history, including those put in place by several major developing countries, and to the massive bailouts of financial institutions in industrial countries. The trade shock was also severe, longer lasting (its effects are still visible today) and affected all countries. In the developing world, high and mid-tech manufacturing exporters were hardest hit by the collapse of export volumes. In turn, energy and metal exporters were initially more affected by the collapse of commodity prices than agricultural producers. Dependence of many low-income countries on agricultural exports thus turned out to be a relative blessing under the circumstances. In a longer term perspective, however, real agricultural prices came back to levels below those of the 1970s, in sharp contrast to relatively high real oil and metal prices.
While many have been struggling to cast the SEC v Goldman filing as a fillip to regulatory reform, it is not supportive of ninety percent of the regulatory reform currently before Congress.
Every financial crisis is initially fuelled by investment losses. This crisis is no different. It is important to realize, however, that those losses came from loans to people that could not (and many times still cannot) afford them. As revealed by the Financial Crisis Inquiry Commission, sometimes those loans were made with borrowers’ consent and sometimes they were not. The former is tantamount to borrower fraud and the latter to lender fraud. Both result inexorably in irreversible dollar losses.
One small update to the post is in order.
It is becoming increasingly difficult to ignore, even for a perennial pessimist like me, the plethora of Turkey-positive stories in the foreign media and research houses.
This difference of opinion between my own views of the Turkish economy and (almost) everyone else’s has led me recently to a soul-searching trip all the way to Inferno, where I have questioned my economic sanity.
Greece is now “high yield”, “junk”, “below investment grade”, at least according to S&P. What I mean by that is S&P now rates Greece’s foreign and local currency sovereign debt at the BB+ level (with a negative outlook), below the sometimes-coveted investment grade status, BBB- is the minimum. Why did S&P feel the need to do this now? Just covering its _ss – Greek debt was rated A- as recently as December 2009.
On Friday, April 24, the Greek government requested the IMF and European Union to activate the agreed 45 billion euro loan. The request came just a day after Moody’s downgraded the Greek debt (from A3 to A2) and Eurostat revised its estimate of the 2009 government deficit to 13.6% (up from 12.7%) of GDP. S&P followed soon.
I now know that the Central Bank of Turkey, or CBT, has a completely different notion of a strategy document than mine. While I was not expecting a daily timetable in the Bank’s much-anticipated exit strategy document, I was disappointed by the lack of specificity and the laundry list nature of measures to be removed.
It is a little “inside baseball” as to the process of how the SEC decides to bring an action versus any company, more or less something as large and important as GS. Some of the language has been changed to maintain C’s anonymity.