BBC News - Brazil central bank commits $60bn to prop up currency

Brazil's central bank has announced a $60bn plan to prop up the value of the national currency.

It comes as the Brazilian real nears a five-year low against the US dollar.

The real and other emerging market currencies have fallen steadily over the last three months on speculation of higher US interest rates.

The central bank said it would spend $500m a day on Mondays to Thursdays and $1bn on Fridays buying reais in the currency markets.

The Monday-to-Thursday interventions will target currency swap markets - financial derivatives used by companies and investors to hedge their currency exposure - while on Fridays, the central bank will buy the national currency directly in return for US dollars.

The interventions will run up until December.

"This shows the firm determination of monetary authorities to keep the exchange rate from slipping further," said Andre Perfeito, chief economist at Gradual Investments in Sao Paulo.

It is the first time the central bank has pre-announced daily interventions in this way since 2002 - a time when markets were speculating over a possible Brazilian debt default, following the financial collapse of neighbouring Argentina and with the imminent election of President Luiz Inacio Lula da Silva.

Inflation fears

The weaker currency is raising the cost of imports, which in turn increases the cost of living for Brazilians and raises concern that inflation could get out of control.

It could also put pressure on any Brazilians who have taken on large debts, particularly if the debts are denominated in foreign currency.

Brazil and India have been at the brunt of the recent change in market sentiment, with the real down 16% against the dollar since May.

Both countries benefited from inflows of foreign money over recent years as investors and speculators have been able to borrow cheaply in the dollar.

That process now appears to be unwinding, as the long-term cost of borrowing rises on speculation that the US Federal Reserve is preparing to curtail its monetary stimulus programme, perhaps as soon as next month.

Another victim of the loss of market confidence in emerging markets has been Indonesia, whose currency, the rupiah, has fallen to a four-year low.

Indonesia's finance minister has announced measures to return the country to a trade surplus, including the lifting of restrictions on mineral exports and the imposition of taxes on imports of luxury cars and branded products.

Inflation dilemma

Concerns over Brazil have been heightened by inflation rising well above 6% in recent months, and doubts about the central bank's willingness and ability to contain it.

The country suffered from hyperinflation in the 1980s and 1990s, although price rises have remained in single digits ever since.

The central bank faces a difficult dilemma. The weak currency and rising inflation would normally be tackled by higher interest rates.

However, the country's economy has ground to a halt as Chinese demand for the country's mineral exports has weakened.

The authorities' room for manoeuvre has also been limited by recent street protests.

BBC News - Eurozone growth hits 26-month high, says PMI survey

Eurozone business activity grew at its fastest pace for 26 months in August, according to a closely-watched survey.

Stronger German exports helped eurozone activity to expand in August

The Markit composite purchasing managers' index - which includes manufacturing and services - rose to 51.7 points, from 50.5 in July.

A number higher than 50 indicates growth.

The news boosted European stock markets, which rose in early trading, despite falls in Asia amid fears the US may scale back its stimulus programme.

Markit said the PMI for the services sector, which accounts for the bulk of economic activity, rose to 51 in August to a 24-month high, from 49.8 in July.

The manufacturing sector PMI hit a 26-month high of 51.3 points, up from 50.3 in July.

However, a breakdown of the figures showed that while Germany continued to expand thanks to stronger export activity, France contracted, falling to 47.9 in August from 49.1 in July.

"So far, the third quarter is shaping up to be the best since the spring of 2011," said Chris Williamson, Markit's chief economist.

"The upturn is being led by Germany," he said. "A big question mark still hangs over France's ability to return to sustained growth."

And he cautioned that rising unemployment indicated there were continuing problems. "The job shedding in part reflects the need to keep costs down and remain competitive, but there is still some uncertainty about the outlook," Mr Williamson said.

Worries

Stock markets reacted positively to the news, which followed recent data showing that the eurozone bloc had emerged from recession.

The main markets in London, Frankfurt and Paris were up about 1%, shrugging off concerns about the US stimulus programme that had unnerved Asian investors.

On Wednesday, the minutes of the July meeting of the US central bank, the Federal Reserve, showed that officials were "broadly comfortable" with plans to scale back the $85bn (£54bn) a month bond-buying programme.

While the minutes did not reveal any clues about when the measure may be tapered, analysts said that they did reinforce the view that the tapering will happen.

"Most analysts still expect tapering to start in September, or at the bare minimum a September announcement and implementation through October and November,'" said Stan Shamu, a market strategist at IG Markets in Melbourne.

Reuters News - Cat out of bag, ECB and Germany play down talk of third Greek bailout

1 of 3. A tourist takes pictures in front of the Parthenon temple at the Acropolis hill in Athens August 19, 2013.

Credit: Reuters/John Kolesidis

By Lefteris Papadimas and George Georgiopoulos

ATHENS | Wed Aug 21, 2013 10:37am EDT

(Reuters) - The European Central Bank joinedGermany on Wednesday in playing down talk of a third bailout package for Greece, but reaffirmed the euro zone would help the country trim debt as long as it stuck to its latest aid program.

Speaking in Athens a day after German Finance Minister Wolfgang Schaeuble bluntly predicted Greece would need a new bailout, ECB executive board member Joerg Asmussen said he had not discussed the issue at talks with senior Greek officials.

He referred instead to the euro zone's pledge last year to support Greece until it can tap markets again, provided it sticks to its current bailout obligations and posts a budget surplus before interest payments.

"This is a decision taken in November last year, it is public knowledge, and there's nothing new and there's nothing to add," he said. "If we look at how things unfold, we will know not before spring next year if the country has reached a primary surplus on an annual basis."

In Berlin, German officials sought to distance themselves from Schaeuble's comments, which broke a pre-election taboo by describing a new rescue as inevitable.

Greece has already been bailed out twice since 2010 with 240 billion euros worth of agreements coordinated by the ECB, European Union and International Monetary Fund.

It had been expected to seek some form of additional debt relief sooner or later to bring its massive debt down to a manageable level, but the openness of Schaeuble's statement that there would need to be a third bailout for Athens came as a surprise.

Germany's finance ministry said the euro zone would take a fresh look at Greece's aid program in mid-2014 and that Berlin was not aware of any discussions on how to structure a new rescue package.

"We have reached the middle of the current program. It is August 2013, we will certainly have to look in mid-2014 at where we are, what the conditions are and whether the program has been fulfilled," said spokesman Martin Kotthaus.

Schaeuble's boss, Chancellor Angela Merkel, in her first comments on Greece since his comments, stuck to her line that it was too early to discuss another package, or to speculate how large it could be.

"I can't say today what kind of sums might be necessary," she told broadcaster Sat.1. "Only in the middle of next year will we be able to say."

A Greek finance ministry official speaking to Reuters on condition of anonymity said any further help for Greece would aim to cover its funding shortfall in 2014-2016 and would be much smaller than the previous aid packages, given the country's limited funding needs for the period.

The International Monetary Fund has put Greece's uncovered funding needs for 2014-2015 at 10.9 billion euros.

At least part of that stems from national European central banks refusing to roll over some Greek bonds they hold, as well as a potential shortfalls in tax and privatization revenues and Greece being unlikely to fully return to bond markets next year.

Such estimates are revised frequently and are highly sensitive to budget and economic growth projections, which Greece's lenders are expected to update in the fall.

GREEK "DEBT COLONY"

Schaeuble's comments were immediately seized on by Greece's anti-bailout opposition, who fear that any new aid will be accompanied with yet another round of painful austerity.

"Schaeuble threatens with new help," leftist newspaper Efimerida ton Syntakton deadpanned on its front page, next to a stern-looking image of Schaeuble with tightly pursed lips.

"They admit they failed and now they want to save us again," the newspaper said.

Panos Skourletis, spokesman for the Syriza opposition party, said: "Contrary to recent talks about an eventual debt writedown, we are going down the same old road, the same recipe, which inflates debt and turns Greece into a debt colony."

Syriza shocked established parties in the last two elections by riding a wave of public anger at austerity to become the country's second largest party.

Greek officials have suggested any funding shortfall could be covered with a combination of new rescue loans, or debt support measures like extending maturities, cutting interest rates on loans, as already envisaged under a euro zone decision on Greece last year. One official suggested bilateral loans Athens got under its first bailout could also be rolled over.

European Union Monetary Affairs Commissioner Olli Rehn was cited on Wednesday as saying that while new rescue loans in a third bailout were possible, they were not the only option to help Greece and pointed to the option of extending maturities.

The aid program Schaeuble is expecting will be at least partly financed via the EU budget, German newspaper Sueddeutsche Zeitung cited unnamed sources as saying.

Greece's international lenders - the EU, ECB, and IMF, known as the troika - are due to return to Athens in the autumn to reexamine whether Greece's debt is on sustainable footing and whether the government needs to find further savings to meet its 2015-2016 budget targets.

Progress on reform in the recession-stricken country has been patchy. Tax revenues continue to lag targets and the Greek economy has struggled to show signs of recovery after shrinking by about a quarter from its peak six years ago, mainly as a result of austerity policies imposed under two bailouts.

(Additional reporting by Harry Papachristou, Editing by Deepa Babington/Jeremy Gaunt)

BBC News - Anonymous £350m fund stuck in legal limbo

 

£350m is nowhere near enough to pay off the UK's national debt

 

An anonymous donation to the country made 85 years ago and now worth £350m is stuck in legal limbo because of a stipulation made by the donor.

The National Fund was created in 1928 to be held in trust until the UK was close to paying off all its debts.
The fund was to be used to pay off the "entire national debt" - but that currently stands at £1.2tn, more than 3,000 times the £350m in the fund.

Barclays, which manages the fund, wants permission to give the money away.
The fund is now one of the UK's largest charities by net assets, and Barclays has been trying for four years to get permission to make it available as charitable grants or hand it to the Treasury.
Any change relating to how the money could be used would have to be approved by a court.
'Number of options'
"We've been working ever since we became the trustee to change the original objects, which say the funds can be used only to pay off the entire national debt," a Barclays spokesman said.
"We are working with the Charity Commission and the attorney general's office to look at how best to take the fund forward."

A spokesman for the attorney general's office said: "We are looking at a number of options for the future of the fund, consistent with its object of extinguishing or reducing the national debt."
According to the Financial Times, the National Fund has grown 700-fold - from £500,000 when it was created to its current level.

The anonymous donor stipulated trustees could use part of the fund to pay debts if national circumstances merited it but neither the Second World War nor financial crises had prompted a payout to date, the newspaper reported.

This week the government used a £520,000 donation to "pay down the national debt".
Former nurse Joan Edwards left the money to "whichever government is in office" to use "as they may think fit", and the Conservatives and Liberal Democrats initially divided it between the parties.

But after criticism of that decision, Prime Minister David Cameron said it would go to the Treasury to "meet the spirit" of what Miss Edwards had intended.
 

 

Joan Edwards left £520,000 to the government to use "as they may think fit"

BBC News - EU 'plans single telecoms regulator'

 

Difficult call: the EU may want a single telecoms regulator

The European Commission is thought to be considering a plan for a single telecoms regulator to cover all 28 member states.

The new regulator could take over some of the responsibilities of national watchdogs, like Ofcom in the UK.
The Commission told the BBC that the proposal was "not a finished document", so it could not confirm the details.
But a leak to the Financial Times appears to show that such plans have been under consideration.
The document, produced by the Directorate General for Competition, says "a true pan-EU regulator would be the most effective solution to remove national divergences".
It suggests that any new regulator would take over some powers from national bodies.
"Advancing further towards a true single market would require gradually moving away from the present status quo of 28 national regulators," it says.
In a statement, the Commission said the newspaper article "apparently refers to an earlier draft".
It said the plans would only become clear when adopted as a final proposal on 10 September.
Roaming The EU Commission is already working on proposals to create a single telecoms market in Europe.

Neelie Kroes, the EU telecoms commissioner, is in charge of drafting them.

Under the plans, European telecoms companies would get access to all 28 member states.
They would be required to offer EU-wide mobile packages and would no longer be allowed to levy roaming charges.
The industry has been heavily opposed to this idea, which would lose them billions of pounds in revenues.
The UK regulator Ofcom said it could not comment on the proposals, as it had not seen them.
However, a spokesman told the BBC: "Neelie Kroes has already made it clear that there is no need for a single telecoms regulator."
But the Commission is playing down any apparent differences between the Directorate General for Competition and Ms Kroes.
It said that Ms Kroes had been drafting the proposals "in close co-operation" with other departments.
Regulation Analysts say they are not surprised by the idea of a single telecoms regulator for the EU.
"It is a logical step. It does make sense," said Dario Talmesio, principal analyst from Informa Telecoms and Media.
But the idea leaves many questions.
In particular, it is unclear how any such regulator might allocate the use of the spectrum in any individual country.
Up to now, spectrums have been seen as national assets, which governments like to control.
"To British citizens, it would be like a single regulator deciding how to use North Sea oil reserves," said Mr Talmesio.

European mobile operators already feel aggrieved by the weight of regulation coming out of Brussels.
Equivalent markets in North America, Latin America and Asia are much less tightly regulated, leaving operators like Verizon, AT&T and China Mobile with much greater profitability.
"The tone of regulation has driven European operators to a point where they feel they can't defend themselves," said Shaun Collins, of the telecoms consultancy CCS Insight.
Some fear they are now vulnerable to companies with deeper pockets.
One example is the recent take-over bid launched by Mexico's America Movil for the Dutch operator KPN.
But since February, some in the industry feel that the mood in Brussels has been more conciliatory, with more consideration for telecoms operators.
Until now, the EU has appeared to be more on the side of consumers, with its campaign to cut bills.

Bloomberg News - India Fighting Worst Crisis Since ’91 Seeks to Buoy Rupee

By Jeanette Rodrigues & Ye Xie

India Fighting Worst Crisis Since ’91 Limits Capital Flows

Dhiraj Singh/Bloomberg

The rupee’s decline is a reminder of the crisis in the 1990s when the widening deficits in the budget and current account pushed the currency down 37 percent between 1991 and 1992.

India increased efforts to stem the rupee’s plunge and stop capital outflows that are pushing the economy toward its biggest crisis in more than two decades.

The Reserve Bank of India, whose Governor Duvvuri Subbarao steps down next month, cut the amount local companies can invest overseas without seeking approval to 100 percent of their net worth, from 400 percent, according to a statement late yesterday. Residents can remit $75,000 a year versus the previous $200,000 limit. Rupee forwards rose for the first time this week.

Policy makers’ moves since July to tighten cash supply, restrict currency derivatives and curb gold imports have failed to arrest the rupee’s slump to record lows as they struggle to attract capital to fund a record current account deficit. The rupee has weakened 28 percent in the past two years, the biggest tumble since the government pledged gold reserves in exchange for loans from the International Monetary Fund in 1991.

“I don’t think this fixes India’s problem, at best it restricts about $5 billion of flows annually, which doesn’t make a dent,” Bhanu Baweja, the global head of emerging market cross asset strategy at UBS AG, said in a phone interview from Londonyesterday. “The minute you restrict outflows, people will start legitimately speaking in terms of capital controls, although these are only on locals and not on foreign investors.”

Cash Reserves

Central bankers also exempted lenders from cash reserve rules for certain foreign-currency deposits yesterday. Banks accepting non-rupee deposits after Aug. 24 from Indians living abroad need no longer keep 4 percent in cash and invest 23 percent in government-approved securities, the RBI said.

Nomura Holdings Inc. estimated that private remittances and outward direct investment abroad totaled $15.9 billion in the year ended March 31, citing central bank data.

“Indian companies’ outward foreign direct investment has been growing in recent years for various reasons such as pursuing growth markets, technology, natural resources, and these could be adversely hit,” Sonal Varma, an economist at Nomura in Mumbai, wrote in a report yesterday. “While the authorities aim to reduce foreign-exchange volatility, we fear that they may end up sending a panic signal.”

One-month offshore non-deliverable rupee forwards, which investors use to hedge or speculate on the currency, rose 0.2 percent 61.83 per dollar today. NDFs touched a record low of 62.53 on Aug. 6. The contracts, settled in dollars, are agreements to buy or sell assets at a set price and date.

Rupee Falls

In the spot market, the rupee fell 0.4 percent to 61.4437 per dollar before the announcement. It has lost 11 percent this year, the second most among 12 Asian currencies. The rupee touched an all-time low of 61.8050 on Aug. 6. Financial markets in India are closed today for the Independence Day holiday.

SGX CNX Nifty Index futures for August delivery fell 0.5 percent to 5,722 at 5:47 p.m. in Singapore. The Bank of New York Mellon India ADR Index for Indian stocks traded overseas rose 0.2 percent yesterday to 1011.77, paring its decline this year to 3.3 percent. India’s benchmark Sensex index is down 0.3 percent this year.

The rupee’s plunge accelerated since May as foreign investors pulled money from Indian bonds and stocks on concern the U.S. will pare stimulus. International investors cut their holdings of Indian bonds by $10 billion since a peak in May to $28 billion, the lowest since January 2012, according to central bank data.

Steadying the rupee is the top priority for policy, the monetary authority said on July 29.

Capital Controls

The imposition of capital controls is one facet of the “impossible trinity trilemma” that Subbarao says the central bank is facing. The economic theory argues that it isn’t possible to have free movement of capital, a fixed exchange rate and an independent monetary policy simultaneously.

To contain the currency decline, the RBI raised two interest rates July 15 and restricted bank’s access to cash through its daily repurchase auctions.

India also boosted import duties on gold and silver on Aug. 13 and banned the import of gold in the form of coins and medallions to reduce the trade deficit. In a briefing in New Delhi yesterday, Economic Affairs Secretary Arvind Mayaram said imported gold must be stored in government-mandated warehouses.

So far, the efforts have fallen short as capital outflows make it more difficult for India to bridge the gap in the current account, the broadest measure of trade.

The deficit widened to an unprecedented 4.8 percent of gross domestic product in the year ended March 31. The government aims to narrow the gap to 3.7 percent of GDP, or $70 billion, this year, Indian Finance Minister Palaniappan Chidambaram told parliament in New Delhi yesterday.

New Banker

Raghuram Rajan, the University of Chicago economist credited with predicting the 2008 financial crisis, will take charge of the Reserve Bank next month after Subbarao’s term ends Sept. 4. There’s no “magic wand” to fix India’s problems, he said on the day of his appointment Aug. 6., while adding the RBI and the government will deal with the challenges.

The measures “are unlikely to have a meaningful impact on the currency,” Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, said in a phone interview. “For a long-term impact we need to increase the attractiveness of India as an investment destination.”

1990s Crisis

The rupee’s decline is a reminder of the crisis in the 1990s when the widening deficits in the budget and current account pushed the currency down 37 percent between 1991 and 1992. The government secured an emergency loan of $2.2 billion the IMF by pledging 67 tons of India’sgold reserves as collateral. Growth slowed to 2.1 percent in 1991, from 5.6 percent the previous year.

Assistance from the IMF led then finance minister and now prime minister, Manmohan Singh, to open India’s economy to foreign investment. Since then, economic growth has accelerated, with GDP expanding more than 9 percent in each of the three years through March 2008 compared with 3.7 percent between 1950 to 1973.

The country is in a better position to counter a crisis, with $277 billion foreign reserves, enough to cover more than six months of imports, according to data compiled by Bloomberg. That compares with less than two months of import coverage in 1991, according to a RBI report in August 2012.

Growth Slowdown

At the same time, the economy is posting its slowest growth since 2003, expanding 5 percent in the year ended March 2013. Last month, the RBI cut its growth forecast for the year through March 2014 to 5.5 percent form 5.7 percent.

The slowdown won’t last long as the government removes hurdles for stalled projects, eases foreign ownership rules and starts work on new ports and rail lines, the prime minister said in a speech in New Delhi today. Singh is seeking to repair the image of his government and the ruling Congress party before elections due by May.

India’s currency defense will raise borrowing costs for the government and companies, slowing economic growth further, according to Michael Shaoul, chairman of New York-based Marketfield Asset Management LLC.

“It is historically very difficult to defend a currency when you have large current account deficit,” Shaoul, who helps manage $13 billion in assets, said in a phone interview from New Yorkyesterday. “These measures are not really helpful as they are going to do damages to the local economy. The real danger is that foreigners start to withdraw more capital and you start a vicious cycle.”

BBC News - Mexico opens oil sector to private sector investment

Mexico plans to open up its state run oil industry to private investment.

 

Oil revenues make up a third of Mexico's national budget

A source of national pride, Mexico's oil industry has been protected from private involvement for 75 years.
President Enrique Pena Nieto has proposed reforms that will encourage foreign and domestic investment in the industry.

Mexico's oil industry is dominated by the state oil firm Pemex, but it needs investment and expertise to develop new oil and gas fields.

Currently, private companies can be awarded service contracts within the oil industry.
Under the President's plan that would go much further, allowing private companies to share the risks and profits of developing new fields.

If the reforms go through, analysts say the liberalisation of the oil sector could double foreign investment in Mexico, giving the economy the biggest boost since the country joined North American Free Trade Agreement (NAFTA) twenty years ago.

Political opposition

Mexico's political leaders stressed that the reforms do not constitute privatisation, because no oil concessions will be sold off.

However, even that is a step too far for Mexico's leftist political parties, who oppose the reforms.
BBC Correspondent in Mexico, Will Grant said: "The reform won't be simple to get through congress.
"The government faces a complicated task in negotiating with all sides, including the powerful unions.
"Yet, there is a growing sense among ordinary Mexicans that Pemex is no longer fit for purpose, is an aging and out-dated institution and that root and branch reform is probably needed," he said.

Foreign investors
 
A large share of Pemex's profits support government spending which has hampered the company's ability to fund new projects.

The government has warned that Mexico faces becoming a net oil importer as early as 2018, if major new oil projects cannot be developed.

Foreign oil companies, including BP and Exxon Mobil, are waiting to see the details of the reforms to see exactly what investments will be allowed.

According to figures from OPEC, Mexico is the world's 10th-biggest producer of crude. Production has fallen by 25% since hitting a peak of 3.4m barrels per day in 2004.
Despite being a top exporter to the United States, Mexico still has to import nearly half of its gasoline, because of a lack of refining capacity.