Category Archives: Finance

Spanish Prime Minister’s secret Troika promise


Spain’s prime minister is the target of outrage today after one of the country’s leading newspapers revealed a secret promise he’d made to the a Troika member promising to inflict yet another round of austerity on a country already wracked by high unemployment and a stumbling economy.

The Troika, comprised of the European Commission, the European Central Bank, and the International Monetary, disperses funds to bail out countries effectively bankrupted by the collapse of their banks at the start of the Great Recession.

From El País:

The Spanish political scene was in turmoil on Monday after EL PAÍS revealed the contents of a letter that acting prime minister Mariano Rajoy sent to the European Commission.

In the letter, Rajoy said that if he is re-elected at the upcoming elections of June 26, he is “prepared to adopt new measures, if required, in order to meet the [deficit] target.”

In public, Rajoy, of the Popular Party (PP), has denied that Spain will require any further spending cuts following a raft of unpopular measures that were taken at the height of the economic crisis.

Spain’s population has already been hit with pay and pension cuts and selloffs of public property in previous rounds of austerity, yet the promised economic recovery has failed to transpire.

From the National Institute of Statistics, here are the latest jobless percentages for Spain’s provinces, with the national rate represented by the darker bar:

BLOG Spanish jobless

IMF issues a call for major Greek debt relief


One of the three members of the Troika administering post-crash debt relief loans to Greece is calling for major concessions to the austerity-wracked nation, including outright loan balance cuts of up to half.

The call comes the day after the Greek government passed yet another round of pay and pension, cuts, tax increases, and further sell-offs of the national commons.

From Greek Reporter:

The International Monetary Fund (IMF) released its preliminary draft Debt Sustainability Analysis (DSA) on Monday, May 23. the DSA was prepared by the fund staff in the course of policy discussions with the authorities and the European institutions in recent months.

The report, published a day ahead of the crucial Eurogroup on May 24, calls for an “upfront” and “unconditional” debt relief. Without immediate debt relief the recession-ravaged country would deteriorate dramatically over the coming decades. In fact, at the current pace debt would eat up 60 percent of the budget by 2060.

The report states that “providing an upfront unconditional component to debt relief is critical to provide a strong and credible signal to the markets about the commitment of official creditors to ensuring debt sustainability, which in itself could contribute to lowering the market financial costs. An upfront component can also help garner more ownership for reforms.”

The report states that public debt was projected to surge from 115 percent to 150 percent of the GDP because of the expected internal devaluation. A deeper-than-expected recession necessitated significant debt relief in 2011-2012 to maintain the prospect of restoring sustainability. Serious implementation problems caused a sharp deterioration in sustainability that raised new doubts on the realism of policy assumptions from mid-2014 onwards.

More from the ANA-MPA news agency:

The measures recommended included a reprofiling of existing loans, necessary to cut funding needs to 20 pct by 2040. In this framework, the Fund recommends an extension of repaying loans received by the EFSF (130.9 billion euros) by 14 years, another 10 years for the loans received from ESM (186 billion) and another 30 year of bilateral loans from EU countries (52.9 billion).

The IMF also recommends extending a grace period for ESM loans by six years and a 17-20 year extension of EFSF and bilateral loans, respectively. This action would cut the funding needs by 17 pct of GDP by 2040 and by 24 pct by 2060.

The Fund also recommends a reduction in the margin (0.5 pct) added on a floating interest rate in bilateral loans and introducing an 1.5 pct ceiling on interest rates for the other two types of loans by 2040. This would reduce public debt by 53 pct of GDP by 2040 and by 151 pct by 2060 and the country’s funding needs by 22 pct by 2040 and 39 pct by 2060, safeguarding debt sustainability.

The IMF significantly reduced privatization proceed targets to 5.0 billion euros.

As the IMF summary notes:

Greece continues to face a daunting fiscal consolidation challenge. After seven years of recession and a structural adjustment of 16 percent of GDP, Greece has only managed to achieve a small primary surplus in 2015, and this due to sizeable one-off factors. This is still far away from its ambitious medium-term primary surplus target of 3½ percent of GDP. Reaching this target still requires measures of some 4½ percent of GDP. Low-hanging fruit have been exhausted, and the scope for new significant measures is limited.

The full report is here [PDF].

Greece surrenders to the troika, more austerity


As thousands of Greeks demonstrated in Syntagma Square outside the national legislature, the national parliament drank the Kool-Aid and passed the austerity measures demanded by the Troika of international lenders, a move that may foreshadow the end of the Syriza Party’s term at the helm of the national government.

Alexis Tsirpras and his party emerged as the victors last year on a promise to overwthrow the yoke of imposed austerity.

Instead, they have embraced it.

From eKathimerini:

Greek MPs approved on Sunday night a multi-bill containing a range of measures, including another 1.8 billion euros in tax hikes and the framework for a vast new privatization fund, paving the way for the Eurogroup to release more loans to Athens.

Prime Minister Alexis Tsipras saw 152 of his 153 MPs back the controversial package of legislation, meaning the government’s slim parliamentary majority was not put at risk.

Vassiliki Katrivanou voted for the legislation “in principle” but against the articles regarding the privatization fund and an automatic mechanism applying fiscal cuts if the primary surplus target is not met.

Eurozone finance ministers are due to meet in Brussels on Tuesday to decide whether Greece has done enough to complete the first review of its latest bailout program. If the green light is given, Athens is set to receive a minimum of 5.7 billion euros in fresh funding. However, there are still questions regarding whether the eurozone creditors and the International Monetary Fund will agree on how to reduce Greece’s debt or whether this will prove an obstacle to the next disbursement.

Some of the reaction to the vote and more on the measures embraced from the Guardian:

“They are with the exception of the Acropolis selling everything under the sun,” said Anna Asimakopoulou, the shadow minister for development and competitiveness. “We are giving up everything.”

The multi-bill, which also foresees VAT being raised from 23% to 24%, is part of a package of increases in tax and excise duties expected to yield an extra €1.8bn in revenue. Earlier this month, Tsipras’s leftist-led coalition endorsed pension cuts that were similarly part of an array reforms amounting to €5.4 bn, or 3% of GDP.

At the behest of the EU and International Monetary Fund, the government has agreed to adopt tighter austerity in the form of an automatic fiscal brake – referred to as “the cutter” in the Greek media – if fiscal targets are missed.

Despite official claims that goals will be achieved, there is a high degree of scepticism as to whether this is feasible. The Greek economy has seen a depression-era contraction of more than 25% since the outbreak of the debt crisis in late 2009, and with high taxes likely to repulse investment, economic fundamentals are also unlikely to improve.

The Associated Press examines the causes and more of the effects:

Greece now hopes the creditors will complete the first assessment of its third bailout program, freeing loan disbursements that will allow Greece to meet its obligations and avoid default.

>snip<

[I]t will have to navigate differences between the International Monetary Fund, which call for a generous debt cut albeit with more austerity measures, and the Europeans, chief among them German finance minister Wolfgang Schaeuble, who want no such cuts.

At the end of an acrimonious four-day debate, including in committee, Prime Minister Alexis Tsipras blasted the main conservative opposition and other centrist parties for having supported last August’s third bailout deal, but not the laws that have been voted on as prerequisites for concluding the assessment.

Opposition leader Kyriakos Mitsotakis countered that the bailout terms never included the superfund, which will expire in 2115. He said the precise terms were the results of Tsipras’ failure to negotiate reforms he and his leftist party have never believed in. He said he would prefer spending cuts to higher taxes and would negotiate with the creditors for lower annual levels of budget surpluses (2 percent of GDP instead of 3.5 percent) from 2018 onward.

The government majority was momentarily shaken Saturday when the junior partner, right-wing Independent Greeks, objected to freezes in pay hikes for so-called “special categories” of civil servants, including military, police, diplomats, judges, public health service doctors and university professors.

The pay cuts, which would have saved about 120 million euros ($135 million), were shelved and will be partly replaced by bringing forward taxes on Internet users and beer.

There’s more, after the jump. . . Continue reading

Chart of the day: Treasures flow to tax havens


Treasury notes are a financial safe haven, backed by the full faith and credit of the U.S. government and paying a fixed interest rate. America’s foreign have traditionally purchased them with the hefty trade balances. And now hedge funds are scooping them up and hauling them to offshore tax havens with tight bank secrecy laws, just like those Panama Leaks folks.

And it took a Freedom of Information Act request to find out how much has been heading offshore.

And that leads to our Chart of the day:

BLOG Caymans

From Bloomberg, which reports:

A Caribbean financial center favored by hedge funds is now the third-biggest foreign owner of U.S. government debt.

The Cayman Islands, where more hedge funds are domiciled than anywhere else in the world, held $265 billion of Treasuries as of March, up 31 percent from a year earlier, according to data the U.S. Treasury Department released Monday. It was the first time that the U.S. released details of bond holdings among OPEC and Caribbean countries, and it came in response to a Freedom-of-Information Act request submitted by Bloomberg News.

The stockpile makes the British territory, an offshore tax haven with about 60,000 residents, the largest holder after China and Japan. Those nations, the world’s second- and third-biggest economies, each own more than $1 trillion of Treasuries.

 The surge in ownership of U.S. debt for the Caribbean getaway shows that hedge funds are joining more traditional mutual fund managers in buying Treasuries amid lackluster returns in other assets, with many global stock indexes posting losses in 2016. Negative bond yields in Europe and Japan are also pushing asset managers into the $13.4 trillion Treasuries market, which is on pace to gain for a third consecutive year.

Graduation graphic: The mortarboard says it all


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BLOG Loans

Brazil’s acting president hews to neoliberal line


Michel Temer, Brazil’s acting president and chief neoliberal, is setting about the most ruthless privatization of the nation’s commons since the Portuguese colonialist first arrived.

And just as with the Portuguese, the nation’s indigenous peoples are shapping up to be the first victims of the relentless drive to turn everything public into a center of private profit.

From the Thomson Reuters Foundation:

Brazil’s interim government is moving ahead with plans for a constitutional amendment that would weaken indigenous land rights and pave the way for new plantations and dams to encroach on lands inhabited by native peoples, a United Nations official said.

Erika Yamada, a member of the U.N’s Expert Mechanism on the Rights of Indigenous Peoples, a human rights advisory body, said the proposed constitutional change would result in Brazil moving backwards on indigenous land rights.

The procedures used to identify and indigenous territories could be altered to give lawmakers more power to decide which territories belong to native peoples, she said.

>snip<

“They (lawmakers) will try and move forward with changes to the constitution that would make it much harder to defend indigenous rights,” Yamada told the Thomson Reuters Foundation in an interview this week.

“I think they will also weaken the process of authorization for large development projects with great social and environmental impact for traditional communities.”

And it’s not just the land and water of the indigenous that are marked for the auction block

From Bloomberg:

Brazil’s Acting President Michel Temer is studying the sale of state assets to shore up public accounts, as well as an audit of the country’s largest savings bank, said a government official with direct knowledge of the matter.

A government task force will consider selling stakes in companies such as power utility Furnas Centrais Eletricas SA and BR Distribuidora, a unit of Petroleo Brasileiro SA, the oil producer known as Petrobras, said the official, who asked not to be named because the plans haven’t been made public. The intention is to help plug a near-record budget deficit and improve the efficiency of state-owned enterprises.

Petrobras’s preferred shares rallied as much as 1.6 per cent on the report, after posting losses during most of the morning.

The plans are the clearest sign yet of a policy shift since the Senate’s suspension last week of President Dilma Rousseff, who had increased the role of the government and state companies in the economy.

Temer has also take the first steps to privatizing the national public broadcaster, reports teleSUR English:

Michel Temer, head of the coup government in Brazil, fired the head of the Brazil Communications Company, the public firm that manages the country’s public media outlets.

The action was rejected by the firm’s board of directors on the grounds that the law that regulates the company prohibits political interference.

“The notion that the president-director of the company should have fixed term, that does not coincide with a presidential mandates, was enshrined precisely to ensure the independence, impartiality and guiding principles of public outlets,” read a statement by the board of the Brazil Communications Company.

“The aim is to ensure autonomy from the federal government and protect the right of Brazilian society to free and public communications, which ensures the expression of diversity and plurality — foundations of a modern and democratic society,” added the statement.

The head of the company, Ricardo Melo, was appointed by democratically elected President Dilma Rousseff for a four year term earlier this month.

The coup government, however, ignored the concerns of the board.

Melo was replaced by Laerte Rimoli, who served as spokesperson for Aecio Neves, the right-wing candidate defeated by Rousseff in the 2014 presidential election. He also previously served as press officer for Eduardo Cunha, the embattled former head of the Chamber of Deputies who was recently suspended by the Supreme Court.

There’s much more, after the jump. . . Continue reading

Chart of the day II: Sittin’ on a mountain of cash


BLOG Cash

The chart and the explanation from USA Today [emphasis added]:

The rising cash holdings of U.S. corporations are increasingly in the hands of a few U.S. companies, with just five tech firms having grabbed a third of it. And nearly three-quarters of cash held by non-financial U.S. companies is stashed overseas, outside the long arm of Uncle Sam.

Apple, Microsoft, Alphabet [Google], Cisco Systems and Oracle are sitting on $504 billion, or 30%, of the $1.7 trillion in cash and cash equivalents held by U.S. non-financial companies in 2015, according to an analysis released Friday by ratings agency Moody’s Investors Service.  That’s even more cash concentration than in previous years, as these five companies held 27% of cash in 2014 and 25% in 2013. Apple alone is holding more cash and investments than eight of the 10 entire industry sectors.

Corporate America’s rising pile of cash is becoming increasingly important to investors as profit growth and the stock market stalls. The amount of cash held by U.S. companies rose 1.8% in 2015. Unfortunately for U.S. investors, 72% of total cash held by all non-financial U.S. companies is stockpiled outside the U.S., up from 64% in 2014 and 58% in 2013, as companies try to avoid paying U.S. tax rates.

Investors are eyeing companies’ growing cash piles as potential sources of dividend increases to maintain fat returns even if stock prices continue to go nowhere. Dividends rose 4% last year to a record high of $404 billion, while companies cut back on capital spending by 3% to $885 billion. Capital spending is the cash companies put into new plants and equipment with the hopes of driving higher profits in the future.