Monday, 29 December 2008

Earlybird Dec. 29, 2008

Headlines for Dec. 29:

WORLD -- Israel Launches Third Day of Attacks in Gaza: (Reuters) Obama must include this subject at the top of his agenda. Today, oil is surging on concern this conflict will disrupt supply. Again, more events of this kind add to volatility.

LATIN AMERICA -- Madoff Investors in Latin America Keep Mum: (WSJ) Would it be disastrous for regional markets that investors and banks disclose losses linked to the Madoff scandal? I can hardly believe it. Private banks and some funds might have invested with Madoff, but we are far from witnessing such disclosures triggering a broad impact in local financial systems. As the story suggests, weak domestic regulatory controls allowed these investors to hide their exposure. Again, it is imperative that countries such as Colombia and Peru overhaul their corporate governance and financial disclosure practices right away.

BRAZIL -- Lula to Announce New Anti-Crisis Measures in January: (Estado) The crisis is President Lula´s favourite subject these days. The crisis has, all of a sudden, show his real face -- he is desperately looking for excuses to increase the state´s grip in any sector that he deems as ''strategic.´´ The concern, some economists say, is to have Brazil running out of ammunition as the crisis unfolds. Credit isn´t flowing, inflation is slowing rapidly and exports are dropping considerably. Recession signs, they call it. But there are things Mr. President can´t avoid. Why not making an effort to bulk up fiscal savings at this point, and reducing debt more rapidly, so interest rates can fall more consistently and quicker? More debt issuance and state-expansionary policies should be announced; Lula said the package will be announced by Jan. 20. Nathan Blanche, the trader who created the derivatives market in Brazil three decades ago, criticised in an interview with Estado yesterday the central bank´s foreign exchange market intervention policies, saying they failed to ease volatility.

COLOMBIA -- Pyramids Scandal Continues, and the Government Response Remains Timid: (Tiempo) Tonight is the deadline for investors on the DRFE pyramid company to file for compensation. The first time I heard of a pyramid company bursting was in August -- and so far the government hasn´t issued a single rule tightening controls on illegal fundraising by these type of companies. Financial regulation is a weak area of Colombia´s economy, and foreign investors should remain attentive to development on this issue.

PERU -- Gasoline Price to Fall Next Year, Garcia Says: (Comercio) This is interesting. An importing country plans to reduce gasoline prices, a move that will subsidise fuel consumption by a few citizens but, as opposed to what is predicated by populist politicians, usually fails to go down the market chain and ease the fuel companonet on the poor´s cost of living (I never saw food and rent prices coming down because of a drop in gasoline.) But the Peruvians have room to do it: for years they have been disciplined enough to bulk up their fiscal savings, so they can afford to keep gasoline subsidised for a little longer. In Colombia, a recent study by the central bank showed that it is necessary to eliminate subsidies (which implies prices should stay at similar or higher levels in 2009.) That is also prudent. For a country that´s on the verge of losing its oil self-sufficiency status, dismantling the current policy would be a mistake.

VENEZUELA -- Chavez Will Radicalise if He Loses Referendum on Presidential Term Limits: (AP) When Chavez lost the referendum on Dec. 3, 2007 and promised to accept his defeat, we said he would radicalise his positions. People listened to his softcore speech and refused to believe he would do it. Herman Escarra (I might be wrong, but I am sure he was a Chavez supporter and the mastermind of the 2007 defeated referendum draft) told AP the most likely scenario is a radicalisation. I agree with him -- the important loss of popular endorsement that Chavez is suffering can only be reverted (in the president´s erroneus view) by radicalising. In the meantime, the government passed an unreal budget for 2009, which will put more pressure on economic authorities to devalue the currency. Raising local fuel prices is becoming necessary. How long is this guy going to withstand the pressure?

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