EMIA Week in Review: China & Russia Want Asia-Pacific Free Trade Deal, Vietnam’s Growth Accelerates

November 13, 2017


Argentine Inflation Forecasted to End at 21% this Year and 14.3% in 2018


  • Argentina's annual core inflation forecast for the end of 2017 rose by 0.7 percentage point (pp) in November to 21%, according to a monthly survey conducted by the Argentine central bank.

  • For 2018, analysts estimated a 14.3% annual inflation, from 14% in the previous survey.

  • Recently, the Argentine monetary authority gave up of its inflation target for 2017, between 12 and 17%, focusing on the target for the end of 2018, between 8% and 12%.

  • The monthly inflation projection increased to 1.4% in November from 1.3% in the previous survey.


Vietnam Rises 14 Places in the World Bank’s Ease of Doing Business Rankings

Vietnam Briefing

  • Vietnam climbed 14 places to 68th amongst 190 economies in the latest World Bank’s Ease of Doing Business 2018 rankings.

  • It ranked fifth amongst ASEAN countries, with Singapore, Malaysia, Thailand, and Brunei leading the group.

  • As per the report, significant improvements were made in the area of paying taxes, trading, enforcing contracts, access to credit, and electricity reliability.

  • The report covers the period from June 2 last year to June 1 this year.


Brazil Central Bank Urges Congress to Approve Pension Reform


  • Brazil’s congress needs to reform the country’s pension system while global markets are favorable or risks facing more volatility, central bank chief Ilan Goldfajn said during an event in Uruguay.

  • “We don’t have until the end of times to do what must be done,” Goldfajn said during a panel with fellow central bank presidents from Latin America.

  • The pension overhaul, seen by investors as crucial to plugging Brazil’s budget deficit, came close to a lower house vote in late May after months of discussions, but has remained stalled for six months due to a corruption scandal.

  • Talks resumed last month after the lower house voted to reject a criminal charge against President Michel Temer. But pessimism over his chances to pass sweeping reforms has started to creep into Brazilian markets, with stocks falling to a two-month-low on Tuesday.


Mexico: Energy Reform Brings Investment

Hydrocarbons Mexico

  • The government spoke about the opportunities that Energy Reform has brought to Mexico, especially in infrastructure and employment projects.

  • The Energy Regulatory Commission (CRE) announced a MXN$345M investment to improve the fuel storage and distribution in Lázaro Cárdenas port.

  • CRE representative, Guillermo Pineda, said that the investment is possible due to Energy Reform and that the government estimates that Mexico will receive additional investments of US$251B by 2031.

  • Pineda commented that CRE is focusing on guaranteeing energy supply around the country, but acknowledged that “the main challenge is to ensure that energy reaches all industries, businesses and homes in the quantities demanded, with appropriate quality and at competitive costs.”


Malaysia’s 2018 Budget: Salient Features

ASEAN Briefing

  • On October 27, 2017, Malaysia’s Prime Minister Najib Abdul Razak tabled the country’s much anticipated 2018 budget.

  • The new budget is in line with the government’s agenda to achieve Transformasi Nasional 2050 (TN50) or National Transformation 2050.

  • TN50 is a 30 year-plan, first introduced in the budget 2017, that aims to make Malaysia one of the world’s top 20 countries by 2050.

  • Termed as a generous and people friendly budget, the proposed allocation for 2018 stands at RM280.25 billion (US$66.3 billion) – a rise of 7.5 percent from 2017. The Malaysian government has proposed several tax incentives for investors and venture capital firms in the 2018 budget.


IKEA Shipping China Made Furniture Via Rail To Estonia For European Markets

Silk Road Briefing

  • In the increasingly competitive China-EU rail freight space, Estonia’s EVR Cargo has secured contracts with Sweden’s IKEA to use a new China-Estonia route to service IKEA’s customers in Scandinavia.

  • The train, which is scheduled to arrive later this month, provides a more cost-effective manner of getting Chinese manufactured products to European markets than sea and three times faster.

  • The train arrives at Paldiski, a sea port in North-West Estonia on the Baltic Coast, and from there by ship to the Swedish port of Kapellskär.

  • EVR Cargo CEO Raul Toomsalu stated in Estonia’s Daily Newspaper Eesti Päevaleht that “While transporting by container from China to Europe previously cost approximately $600, by now it has reached $1,500 dollars. The cost for a container is nearly the same as transporting by rail, only that instead of 45 days, the journey lasts 10 to 12 days.”


Colombia: Royalty Taxation?

Hydrocarbons Colombia

  • The Council of State ruled a dispute that, according to the plaintiffs, had prevented Colombia from receiving at least CoP$12T in taxes.

  • In 2005, Colombia’s National Tax and Customs Directorate (DIAN) issued a concept that allowed companies to deduct royalties’ payments from their taxes.

  • Royalty production is ‘taken off the top’ so-to-speak and never is recognized as revenue.

  • Four years ago, a group of congressmen and experts in tax and environmental law came together to question the DIAN’s concept and decided to start a legal battle against the entity.


Macri Optimistic on Reaching a Mercosur/EU Trade Deal by End of the Year


  • Argentine president Mauricio Macri who has made signing trade deals a priority, said he was optimistic that Mercosur would be able to conclude a free trade deal with the European Union by year-end despite differences over beef, ethanol and other agribusiness matters.

  • “I feel that the European Union is really committed to finding an agreement with Mercosur,” he said, predicting that a deal could be signed at the WTO Ministerial Conference scheduled to happen in Buenos Aires in early December.

  • Macri, who is wrapping up a two-day visit to the United States during which he met with executives from companies including BlackRock Inc, Amazon.com Inc and DowDuPont Inc predicted the Argentine economy would grow “a little more than 3%” in 2017.

  • “Yes, I am optimistic,” he said. “Everyone says 2.8%, I say a little more than 3%.”


Trump Out, Xi & Putin In – China & Russia Want Asia-Pacific Free Trade Deal

Russia Briefing

  • In the aftermath of the United States pulling out of the planned Trans-Pacific Partnership (TPP) agreement, Russian President Vladimir Putin said this week that Moscow supports the idea of setting up a free trade area in Asia and the Pacific.

  • “We support the idea of forming an Asia-Pacific free trade area.”

  • “We believe this is in our practical interest and represents an opportunity to strengthen our positions in the rapidly growing APR markets.”

  • “I want to note that over the past five years, the share of APEC economies in Russia’s foreign trade has increased from 23 to 31%, and from 17 to 24% in exports. And we have no intention of stopping there.”


Latin America’s Exports Expected to Increase 10%, Following Four Years of Declining Prices


  • In 2017 Latin America and the Caribbean will have left behind half a decade of prices decline of its export basket plus a weak increase in the exported volume, achieving an overall 10% growth in the value of its shipments abroad, according to new estimates released by ECLAC in Chile.

  • The Economic Commission for Latin America and the Caribbean (ECLAC) unveiled its annual International Trade Outlook for Latin America and the Caribbean 2017 report which it indicates that the region’s imports will also recover, some 7%, after four years of declining values.

  • According to the document, the recovery in exports this year will be led by shipments to China and the rest of Asia (23% and 17% value increase, respectively) while exports to the United States and within the region will expand at a rate near average (9% and 10%, respectively).

  • Meanwhile, sales to the European Union will be less dynamic (with a 6% increase).


EU Agrees to Impose Sanctions on Venezuela


  • On 8 November the international press reported that the 28 members of the European Union Committee of Permanent Representatives (Coreper) has agreed that the EU should impose economic sanctions on the Venezuelan government over its latest political repression measures.

  • If confirmed the imposition of economic sanctions by the EU will intensify the already-considerable international pressure on the Maduro government to abandon its increasingly authoritarian measures.

  • With the Maduro government and the ruling Partido Socialista Unido de Venezuela (PSUV) showing no signs of scaling back its efforts to undermine any form of political dissent, the speculation is that Venezuela is now on course to become a pariah state.

  • The reports on the Coreper meeting coincided with the approval of a new ‘law against hate’ by the national constituent assembly (ANC) convened by the Maduro government, which is seen as being inherently repressive. The new law approved by the ANC calls for anyone that “promotes fascism, hate, or intolerance” to be punished with up to 20 years in prison.


Petrobras Looking to Sell its African Oil Exploration Venture


  • Brazil’s Petrobras on Tuesday revealed plans to sell its stake in an African oil exploration venture as part of a wider divestment plan.

  • The state managed oil company is looking to sell its 50% stake in Petrobras Oil & Gas BV, or Petrobras Africa.

  • BTG Pactual E&P BV, a subsidiary of Grupo BTG Pactual SA, holds a 40% stake in the joint venture, while Helios Investment Partners owns the remaining 10%.

  • Petrobras, the world’s most indebted oil company and focus of a massive corruption scandal, is seeking to offload US$21 billion in assets through 2018 and has moved aggressively to cut debt.


State Divestment: Exciting Opportunities for Investors

Vietnam Briefing

  • For the last few years, equitisation continues to be a focus for the Vietnamese government.

  • The government hopes that equitisation will increase the efficiency and improve the management of the State-owned enterprises (SOE) which have been suffering from inefficiency for years.

  • In addition, the much required capital raised from divestments will also assist the government to reduce its growing debt and fund infrastructure projects.

  • In August 2017, the government released Decision No.1232/2017/QD-TTg approving a list of 406 state-owned enterprises to be divested during 2017-2020.


Argentina Central Bank Raises Basic Rate to 28.75% to Contain Inflation Expectations


  • Argentina's central bank raised its policy rate to 28.75% on Tuesday, up from 27.25% previously, as inflation expectations rise, the monetary authority said in a statement.

  • It was the bank's second consecutive hike after a long period of holding the rate steady.

  • Inflation expectations for 2017 rose to 23%, up from 22% the prior month, according to the bank's monthly poll of economists published last Thursday.

  • September data put Argentina's inflation at 1.9%, higher than previous months. The country's cumulative inflation rate is 17.6% for the first nine months of the year, above the 12% to 17% target range for 2017.


Oil Markets Settle Lower, but Prospects are in Place for Prices to Continue Climbing


  • Oil settled lower on Tuesday after rising to the highest since July 2015 the previous day, while tension flared between Saudi Arabia and Iran, and the Saudi crown prince tightened his grip on power.

  • Brent crude futures LCOc1 settled down 58 cents, or 0.9%, at US$ 63.69 a barrel, having climbed 3.5% on Monday.

  • U.S. West Texas Intermediate (WTI) crude CLc1 fell 15 cents, or 0.3 percent, to US$57.20 a barrel.

  • Saudi Crown Prince Mohammed bin Salman moved to shore up his power base with the arrest of royals, ministers and investors, which an official described as part of “phase one” of a crackdown.


Macri’s Reform Agenda Advances in Argentina’s Congress


  • On 8 November Argentina’s federal chamber of deputies approved the ‘corporate criminal liability law’ bill promoted by the government led by President Mauricio Macri.

  • The approved bill forms part of the wider economic and political reform package that President Macri said his government will seek to implement following the victory of the centre-right ruling Cambiemos coalition in the 22 October mid-term federal legislative elections.

  • Macri maintains that the reforms are crucial for ensuring Argentina’s future economic development and growth.

  • The approval of this first reform initiative by the lower chamber of congress, which is still controlled by the political opposition, is a positive sign for the Macri administration in what could still prove to be an uphill battle.


Paradise Papers Pose Problems for Argentina’s Macri


  • On 5 November, Argentina’s finance minister, Luis Caputo, was one of more than 120 politicians worldwide linked to tax havens in a huge data leak by the International Consortium of Investigative Journalists (ICIJ) obtained through an alleged hack of a Bermuda-based law firm, Appleby, in 2016.

  • Although the so-called ‘Paradise Papers’ also name Caputo’s Brazilian peer, Henrique Meirelles, and Colombia’s President Juan Manuel Santos, they could be most damaging for the Argentine government led by President Mauricio Macri who was implicated in the ICIJ’s first massive leak of data last year known as the ‘Panama Papers’.

  • Macri managed to clear his name. Caputo must now do the same.

  • However innocent, Caputo’s links to a tax haven are awkward for the Macri administration as it prepares to assume the presidency of the G-20 in 2018 and lead the way in demanding greater financial transparency in the operation of offshore financial centres.


Crimea Free Trade Zone Investments Soar To USD1.65 Billion

Russia Briefing

  • The Crimea Free Trade Zone located in Sevastopol, was established in 2015 following the annexation by Russia of the region, and has realized some USD1.65 billion worth of foreign investment since it was bought into operations, according to Sergei Aksyonov, the head of the FTZ.

  • Speaking at the Friends of Crimea Forum, an international conference, held in Yalta yesterday, he said “The volume of investments in the free economic zone has exceeded 100 billion rubles and the number of its residents has exceeded one thousand.

  • Notably, they include foreign, including European, residents. However there are not that many of them as would like to have.”

  • According to Aksyonov, more and more European partners are set for mutually beneficial cooperation, despite the sanctions.


Brazilian Industrial Activity Reports its Best September Since 2013


  • After two years of the most severe recession facing Brazil, economic indicators continue to mark a more positive horizon for the Brazilian economy.

  • Data released by the Brazilian Institute of Geography and Statistics (IBGE) show that the Brazilian industry is heading for a recovery scenario.

  • In September, domestic industry activity increased by 2.6% over the same period last year.

  • This was the best performance for the month since 2013. With this result, Brazilian industrial production increased 0.4% in the accumulated in 12 months, after 39 months of negative results in the same comparison basis.


Trump’s China Visit: What to Expect

China Briefing

  • China is preparing a lavish welcome for US President Donald Trump, who is set to arrive in Beijing for a three-day visit beginning November 8th.

  • China’s Vice Foreign Minister, Zheng Zeguang, has stated that Trump will receive a “state visit-plus”, and that the two countries are preparing for the visit to be a “historic success”.

  • The visit will include a private tour of the Forbidden City in Beijing and an extravagant banquet, among other events.

  • However, while Trump’s China visit will be high in pomp, most observers do not expect significant progress to be made on substantive bilateral issues.


Argentina and Peru Try to Sort Out Ethanol Dispute and Sign Accord to Promote Overall Trade


  • Argentina and Peru are seeking to resolve a dispute stemming from Peru’s decision to apply anti-dumping tariffs on imports of Argentine biodiesel a year ago, Peruvian President Pedro Pablo Kuczynski said on Friday.

  • In a joint statement following a meeting with Argentine President Mauricio Macri in Buenos Aires, Kuczynski said the two countries would also discuss the price of Peruvian corn imports from Argentina.

  • “We want Peruvian consumers to benefit from the Argentine Pampas,” Kuczynski said, referring to Argentina’s vast grains belt.

  • “There are some pending items that we are going to try to resolve as quickly as possible, including the range of corn prices and biodiesel.”


Wall Street and LSE Battle to Host US$100bn Floatation of Saudi Arabia’s Aramco


  • President Donald Trump has made a pitch to Saudi Arabia to float the world's biggest oil company in the US.

  • “Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange. Important to the United States!”, tweeted the US president.

  • The proposed share flotation will see 5% of the state-owned company sold in an Initial Public Offering next year.

  • It is expected to list domestically and on at least one foreign exchange with New York and London vying for the deal.


China’s Business Reform Agenda

China Briefing

  • In recent years, the government has introduced a number of policies and reforms to improve investment conditions and the ease of doing business in China.

  • Many experienced China hands assert that these reforms are often a case of “two steps forward, one step back”, but this view overlooks a broader positive regulatory trajectory that competitive foreign investors can manage to their benefit.

  • The government’s new Cybersecurity Law, and its data localization requirements, caused some foreign investors to lose confidence in China.

  • New processes for business registration and work permits have frustrated China-based expats that are used to the status quo.


Lima Group Denounces New Attack on Democratic Order in Venezuela


  • On 4 November, the ‘Lima Group’ of 12 Western Hemisphere countries which repudiated the decision by the Venezuelan government led by President Nicolás Maduro to unilaterally convene a national constituent assembly (ANC) issued a statement denouncing a new “affront against the separation of powers” by Venezuela’s supreme court (TSJ).

  • On 3 October the TSJ requested that the ANC lift the immunity from prosecution enjoyed by the vice president of the opposition-controlled national assembly, Freddy Guevara, of the opposition Voluntad Popular (VP) party, so that he could be prosecuted for the charges of instigation to violence and illicit association.

  • The move against Guevara, who has become one of the loudest critics of the ANC and the Maduro government, has been denounced as an arbitrary and illegal attempt by the government-aligned TSJ to silence opposition leaders and “destroy” the national assembly (AN).

  • The move has heightened concerns about the deepening political crisis in Venezuela and the Maduro government’s apparently growing authoritarian bent.

Tags: argentina, brazil, china, emerging markets, emia, free trade agreement, frontier markets, fta, growth, headline news, macri, russia, temer, tpp, vietnam, weekly roundup
Posted in Global, Macro Economics, Macro Economics