Protests continue as Medina delivers State of the Nation speech

The country’s municipal elections were suspended on Sunday February 16, due to a problem with the electronic voting system, four hours after voting had begun.

The municipal elections were to be the country’s first with the new automated voting system, and were regarded as a test for the upcoming May 17 presidential and congressional elections.

The Electoral Board announced that municipal elections are now rescheduled for March 15.

The rescheduled election will be conducted with paper ballots, instead of the automated system.

After the suspension, hundreds joined in demonstrations demanding the resignation of the electoral commission and for the government to provide explanations.

While initially not directed at the ruling party, the anti-government mood has been growing among demonstrators.

Today the country is celebrating 176 years of independence from Haiti and there was a major demonstration in which several artist and musicians participated.

So far the protests do not seem to be massive enough to provoke a political crisis in the country.

If the government does not restore confidence on the electoral branch, the probability of political turbulence in the months after the May elections or June run-off is very high.

The political events of the past two weeks haven’t translated to major movement on the country’s debt, which is understandable given the moderated stand of all candidates.

As things stand, the continuity of the successful economic system in the country does not appear to be in risk.

Parliamentary elections 2020: will Bouterse stay?

On May 25, parliamentary elections will take place in the country. In Suriname the National Assembly elects the president (34 of 51 votes are needed).

The latest poll indicates that 77.2% of respondents felt that the current economic situation is worse than 12 months ago.

When asked what grade voters would give the Bouterse government between 2015 and 2020, respondents answer with a rating average of 4.6 of 10

Survey results show NDP and VHP, the main opposition party, would obtain 4 seats each, of the 17 seats corresponding to Paramaribo.

In Paramaribo, NPS would get two seats and ABOP only one and there would be 6 seats left to assign that would depend on the vote of the undecided

EMFI securities scenario indicates the NDP would get 21 seats, the VHP 16, the NPS 7, ABOP 6 and some of the minority parties would get 1 deputy

The election results would reflect the loss of popular support for the official party compared with 2015 elections

If the scenario we expect in EMFI Securities materializes, we believe that Bouterse would be reelected as president

SURINM 9.25 2026 closed this Thursday at USD 86.52, just 1.9% above the end of January. The lateralization in its price occurs after the increase in more than 20% during the months of January and December.

The expectations that oil explorations by US Apache Corp will result in a significant increase to oil and gas production remain on the horizon.

News Highlights

Apache Corp. is drilling its second exploration well on block 58 offshore Suriname, following its large Maka Central oil discovery in January 7. "Apache is encouraged with the first results," the company writes in its publication.

Commander Faried Ilahibaks denied rumors that a Russian helicopter in Suriname would be used to commit helicopter fraud during general elections. The Russian helicopter deployed by the National Army is only intended to transport material to interior areas that cannot be reached by road or by water, the commander explained.

On February 26, judicial authorities in the United States rejected a request from the Suriname government to allow Dino Bouterse (son of Desi Bouterse) to serve his sentence in Suriname. The president's son was sentenced by a New York court in March 2015 to sixteen years and three months in prison.

Country Report: Apt Pupil

Jamaica successfully concluded a program with the International Monetary Fund (IMF) in November 2019

Over the last six years the Jamaican authorities have been implementing fiscal consolidation measures that allowed the country to reinstate fiscal sustainability.

Debt to GDP has fell from a historic high of about 147% of GDP in 2013 to 91% in 2019.

In 2019, Central Government’s operations recorded a fiscal surplus of JMD 29.3 bn (1.4% of GDP), 0.1 pp above the surplus of JMD 26.6 bn (1.3% of GDP) of 2018

The financing needs for Central Government was 7.8% of GDP in 2019, reflecting the 1.4% of GDP fiscal surplus, amortization of JMD 165.6 bn (7.8% of GDP) and other outflows of 1.4% of GDP.

Last year the expenses were financed by domestic and external loan receipts of JMD 61.3 bn (2.9% of GDP) and JMD 49.9 bn (2.1%of GDP), respectively.

Central Government is expected to continue its policy of fiscal consolidation over the near-term as well as maintain its commitment to a primary surplus and public sector overall balance targets.

The JAMAN 6.75 2028 is listed at 118.94 this Friday, close to its historical highs due to the good expectations of investors

The bond’s yield to maturity is hovering around to 4%, between 1% and 2% below countries with similar credit ratings.

News Highlights

In 4Q2019, GDP grew by an estimated 0.1% y-o-y, the Planning Institute of Jamaica (PIOJ), led by Director General Dr Wayne Henry revealed on Tuesday. For 2019 real GDP is estimated to have increased by 0.9%. This represents the seventh consecutive year of GDP growth.

Minister of Finance Nigel Clarke and Chairman of the Economic Programme Oversight Committee (EPOC), Keith Duncan signed the Memorandum of Understanding to extend domestic monitoring of Jamaica's Economic Reform Programme (ERP).

Jamaica is now among seven new countries which have been placed on a grey list by Financial Action Task Force (FATF) for gaps or failures in stemming the financing of terrorist groups or money laundering. The list emerged from FATF's deliberations on global action to track terrorism funding, which was held from February 19 to 21. Jamaica and Barbados are the only two countries from the Caribbean that have been added to the list.

Days before the Standing Finance Committee of Parliament is slated to begin its examination of the 2020-2021 Estimates of Expenditure, Opposition Leader Dr Peter Phillips has signalled that his party is not satisfied with the spending plans outlined by the Andrew Holness Administration. Speaking in an event of the People's National Party (PNP), Phillips noted that the allocation to the Ministry of National Security is less for the 2020/21 fiscal year than it was for last year.

Flashnote: Ecuador Going Against the Wind

Ecuador's bonds remain the second worst performers of the year amongst sovereign issuers, only behind Lebanon.

ECUADOR 9.5 2030 has plummeted 20.4% YTD, with its yield to maturity increasing 388 bp since last year, going from 10.5% to 14.4% today.

ECUADOR 10.75 2022 shows the highest yield to maturity of the curve with 19.9%, followed by ECUADOR 8.75 2023 with 16.7%, due to the high risks associated with payments from 2022 on.

The accelerated decline in Ecuador’s credit rating and the fall in oil prices in 2020 are the main causes of downward pressure across the curve.

In turn, the credit rating cuts were the result of difficulties in advancing key monetary and fiscal reforms due to lack of coordination between the executive and the legislative.

There is a significant probability that indigenous protests will restart in the coming months as a reaction to IMF-backed reforms, even though the new package is less ambitious than initially agreed with the organism. The elimination of fuel subsidies will be particularly contentious.

Although the curve is flattening towards a new reversion, current returns could attract investors eager for profits.

The presidential and legislative elections in 2021 represent a major risk factor that could impact price levels.

Country report: Tax revenues improve, but it is still not enough

Since FY 2016-17, Pakistan has consistently missed its tax revenue target.

Tax collection dropped 0.4% in FY 2018-19, driven by direct taxes and sales taxes decrease.

Pakistan is heavily dependent on indirect taxes, specifically on sales taxes.

Consolidated tax collection slightly improved 0.2 pp to reach 5.6% of GDP in the first half of FY:2019-20.

Provincial taxation remained weak, while federal collection recorded a robust growth.

We believe that the government will not be able to substantially improve consolidated tax revenues in the medium term.

Although the current government is taking measures to reduce tax evasion, it has encountered resistance from the commercial sector in the economy.

The PKSTAN 6,875 2027 remains around its historical highs when closing on Wednesday at USD 107.91

The entry of loans from Saudi Arabia, the United Arab Emirates and the IMF is good news in the short term, but they raise the possibility of future problems due to the high exposure of foreign currency debt.

News Highlights

On Wednesday, Pakistan confirmed its first two cases of coronavirus. “The patients travelled to Iran where they acquired the virus”, said Meeran Yousuf, the Coordinator to the Health and Population Welfare Minister of Sindh government. Pakistan has closed its border with Iran on Sunday to prevent the coronavirus from spreading to its territory.

An IMF mission visited Islamabad during February 3-13, to initiate discussions on the second review of the Extended Fund Facility (EFF) agreement. On February 14, IMF authorities said that Pakistan has made considerable progress in the last few months in advancing reforms and continuing with sound economic policies.

On February 21, Financial Act Task Force (FATF) decided to continue Pakistan in the “Grey List” and warned the country that if it fails to check flow of money to terror groups by June, it could lead to consequences in its businesses. Pakistan needs 12 votes out of 39 to exit the “Grey List” and move to the “White List”.

Country Report: Economy remains exposed to external shocks

Under the context of strong economic growth, that eventually went overheated, the current deficit account has always been one of the main problems for Turkey.

Behind the deficit, the reasons that explain it can be summed up in high import dependency.

Usually, the deficit is financed through foreign direct investment, portfolio investments or by issuing debt.

Instead, Turkey has relied on international reserves and increasing debt stock.

In 2019, there was a surplus in the current account for the first time in 18 years, with 0.23% of GDP.

This print was due to the compression of imports and better performance in tourist arrivals.

However, it is quite unlikely that the favorable tailwinds will repeat in 2020.

Domestic risks related to further rate cuts, the back-up that the central bank gives to the lira, and the lack of credibility from the government.

External risks include a deterioration in sentiment towards emerging markets, especially with the spread of coronavirus, a rise in oil price and adverse geopolitical developments.

After a month of price adjustment, the TURKEY 11.85 is quoted at USD 145.2 with a yield to maturity of 5.80% up in the last hours due to tensions with Syria

The spread of the CDS in different time horizons show an average rebound of 7% reflecting uncertainty in investors due to the new tensions.

News Highlights

Turkey’s central bank cut interest rates again, delivering the smallest decrease of its seven-month easing cycle but still risking a backlash as investor tolerance of lower borrowing costs starts to wane. The Monetary Policy Committee reduced its key rate for a sixth straight time on February 19 to 10.75% from 11.25%. After weathering 13.25 percentage points of easing since July, the lira has grown more volatile and Turkey’s geopolitical entanglements are unsettling nerves among investors. The latest move brings Turkey’s real rate to minus 1.4%, below such developed countries as the U.S., the U.K., Japan and Canada. Turkey’s currency has lost more than 3% against the dollar over the past month.

Turkey’s consumer confidence index fell to 57.3 points in February from 58.82 in the previous month, according to the latest print from Turkish Statistical Institute. A confidence level below 100 reflects a pessimistic outlook for the consumers, while a reading above 100 indicates optimism.

Turkish state lenders flooded the market with dollars on Thursday to help take the edge off a deepening lira rout amid concern the country is edging closer to a military conflict with Russian-backed forces in Syria. Government-owned lenders sold an estimated USD 800 million on February 20 to help stabilize the lira, according Bloomberg. The transactions helped contain losses in the Turkish currency, which slipped 0.4% to a nine-month low of 6.1079 per dollar. Benchmark bond yields rose above 12% and the Borsa Istanbul 100 stock index dropped the most in the world.

Strategy Viewpoint: Unpacking the Social Bond

Ecuador issued a USD 400 mn social bond, which was bought by a Special Purpose Vehicle (SPV) incorporated in Luxembourg. The SPV, in turn has issued two bonds, which are available for trading: ECUASO 0 2035 and ECUASO 2.6 2035.

The zero-coupon bond is junior to ECUASO 2.6 2035 under the joint waterfall payment scheme. Furthermore, the interest-bearing bond enjoys an Inter-American Development Bank (IDB) guarantee, which the zero-coupon bond doesn’t have.

ECUASO 2.6 2035 has a low 3.1% Internal Rate of Return (IRR), on account of its favorable seniority conditions, while ECUASO 0 2035 bond offers a much more attractive 14.9%.

Nonetheless, in our view, the significantly worse repayment conditions under the ECUASO 0 2035 bond’s waterfall arrangement are not sufficiently compensated by its IRR when compared to similar sovereign bonds.

A look at Bukele's security plan: The beginning of the political crisis

Bukele's security plan has been the main focus of his government, he enjoys high popularity because insecurity is perceived as one of the biggest problems for Salvadorans. Bukele argues that the delays of the Assembly to approve financing for the security plan is a political move by the opposition, which unleashed the current political crisis in El Salvador

Bukele began its management in June 2019. Until December 2019, there were 1,038 homicides per 100,000 inhabitants. This figure represents a 43.6% decrease compared to the same period of the previous year. In May 2019, the month before Bukele assumed the presidency, 287 homicides occurred in the country. In his first month, this figure decreased to 231 and in July, homicides amount to 154.

Part of Bukele's good security management responds to the continuation of past policies that led to the homicide rate on a declining path. In addition, various media have accused Bukele of manipulating homicide figures or negotiating with gangs just like former President Funes did in 2012.

For his part, Bukele had a strong setback as he showed himself as a potential dictator to the international community. It gave a new air to the Legislative Assembly that now has a greater exposure in the media and greater attention from diplomats and international representatives. Bukele must moderate his forms and show that his urgency for loan approval was justified. To do this, Bukele must clearly demonstrate the results of his security plan

News Highlights

On February 17, ARENA party (right-wing) president Gustavo Lopez Davidson resigned after accusations of arms trafficking. According to the Armed Forces, this institution gave Lopez Davidson a type of artillery armament, valued at USD 2 mn and in return they received "weapons that don't work."

On February 17, the Legislative Assembly questioned the president of the National Administration of Aqueducts and Sewers (ANDA), Frederick Benítez, with the purpose of receiving explanations regarding the structural problems suffered by the distribution of water supplied by the autonomous to homes Salvadorans

On February 20, during the event of the XXXIV meeting of Governors of the IDB (Inter-American Development Bank) of the Central American Isthmus and the Dominican Republic, Bukele declared: “I tell you: if you lived one day in El Salvador, believe me that you would burn all politicians together, but you don't live it. ” This statement was perceived as a hate speech to the lawmakers

Rosneft reacts to the new sanctions

Today, Otabek Karimov, Rosneft’s VP for commerce and logistics, held the 4Q earnings conference call. The executive reacted to the fresh sanctions imposed by the U.S. Treasury.

The company said its work with PDVSA focuses on debt repayment.

Karimov told investors that PDVSA is paying its debt to Rosneft in line with an agreed schedule.

Elliott Abrams said yesterday that PDVSA paid last year USD 1.8 bn to the Russian company, which according to Rosneft financial statement equals to the remaining amount of the Venezuelan debt.

PDVSA reduced the debt principal under prepayment deals from USD 1.8 bn at the end of 2018 to USD 800m as of end-September 2019, according to the 3Q presentation. However, Rosneft’s 4Q presentation does not have information on PDVSA outstanding debt.

The updated General License 36 published by the OFAC grants a 3-month period for third parties to wind-down contracts with Rosneft Trading S.A. (until May 20, 2020).

To Venezuela this is an important setback, given that PDVSA’s current problems are related to exports instead of production.

We expect to see a decline in both production and exports due to the lack of buyers, a problem exacerbated by the new sanctions.

By sanctioning a Russian company, U.S. could be attempting to pressure Russia to take a more constructive approach on Venezuelan negotiations. However, the move could have the opposite result, and end up solidifying Russia-Venezuela relations instead of dissuading them.

Russia’s Foreign Ministry said the move would further damage relations with Washington and undermine global free trade.

Country Report: Nord Stream II pipeline puts at risk Naftogaz revenues

Because of its geographic position, Ukraine is the most important transit country in the energy trade between Russia and Europe.

Russia aims to deprive Ukraine of transit revenues building other natural gas transmission infrastructure.

Following the 2018 peak, gas production declined by 300 mcm yoy in 2019 to reach 20.71 bcm.

Even though domestic consumption dropped by 7% last year, with levels declining from 32.3 bcm in 2018 to 29.8 bcm in 2019, domestic production felt short by 9.1 bcm.

The gap between gas production and demand was covered by imports coming from Europe.

The stated-owned Naftogaz group is Ukraine’s largest taxpayer.

Nord Stream II and Turkish Stream II pipelines would mean a significant reduction in transit revenues coming from Russia.

News Highlights

Ukraine’s real GDP grew 1.5% year-on-year, or 0.1% quarter-on-quarter seasonally adjusted in the last quarter of 2019, according to preliminary estimates by the nation's state statistics service Ukrstat published on February 14. NBU Governor Yakiv Smolii said "Economic growth will accelerate from 3.3% last year to 3.5% this year, and to about 4% in the coming years". High levels of private consumption and investment will remain a major driver of economic growth.

Russian hybrid forces in eastern Ukraine launched a series of artillery bombardments and localized advances early on February 18, killing one government soldier and wounding four others, the Ukrainian military said. President Zelensky, convened an emergency meeting of his national security council. The Kremlin denied any involvement. Zelenskyy and his Russian counterpart Vladimir Putin are tentatively scheduled to meet in spring 2020 for a fresh round of Normandy Format talks.

Yesterday, employees of UkrLandFarming and Avangard agricultural holdings demanded resignation of Director of the National Anti-corruption Bureau of Ukraine (NABU) Artem Sytnyk, accusing him of putting pressure on the Ukrainian business, which gives 27,000 jobs to people in the village areas. The protesters have gathered outside the Cabinet of Ministers of Ukraine, where they called on the government to stop pressure from law enforcement agencies on enterprises and expedite the dismissal of Sytnyk, who had been put in the national register of corrupt officials, according to an UNIAN correspondent.

Roadmap February 2020

This report is divided into three large thematic blocks:  sections 1 to 4 deal with the general economic and political environment in the country, sections 5 to 7 deal with external debt and assets, and sections 8 to 10 deal with the future restructuring of the Venezuelan debt.

Section 1 – Oil Production, deals with our interpretation of the impact of sanctions on the local industry, and the ways in which the Maduro government evades them.

Section 2 – Fiscal Accounts and Inflation, describes the evolution of inflationary trends, monetary financing and the government’s fiscal deficit.

Section 3 – The Political Setting, delves into the heated political conflict, the interactions of key actors with their electorates, and the puzzling coexistence of two parallel governments.

Section 4 – Geopolitics and Sanctions, navigates the often-ambiguous waters of international relations, as well as options left on the table to increase pressure on Maduro.

Section 5 – External Assets, shows our estimate of the value of the country’s scant liquid and non-liquid assets abroad.

Section 6 – External Debt, traces the ever-growing stock of debt accumulated by the country, and who it is owed to.

Section 7 – Potential Financing, presents rough estimates of the size of the potential financial support package that a future Venezuelan government can expect.

Section 8 – Bond Description, goes into the fine print in Venezuelan debt contracts, identifying key provisions that may impact the outcome of a restructuring process.

Sections 9 – Restructuring Ideas, reviews scholarly and practitioner proposals for addressing the question of holdout behavior and how to renegotiate the country’s debt.

Section 10 – Bond Selection, sums up the conclusions from the previous sections and provides our chosen positioning for an eventual Venezuelan restructuring.

Country Report: A long way to go for the oil sector

Angola’s oil output has been in freefall since 2017

Financial statements of Sonangol, the Angolan national oil company, reflect the inability to resolve these complications internally and showcase the need for greater amounts of foreign investment

Current oil prices are not high enough to cover Sonangol’s production costs

Angola's economy remained depressed in 2019, and the outlook for 2020 is cloudy

There’s hasn’t been much progress in recovering production levels, a situation that will continue to condition the performance of the Angolan economy in the long term

Moody’s commented on the state of Angola's debt, highlighting the low institutional strength of the country and the weak growth of its economy.

Angola's debt maintains stability in its prices, after the negative overreaction due to the exchange rate problems of last year. 

The reference bond ANGOL 8 2029 is listed at 107.94 at the close of this Monday, with volume traded at average levels.

News Highlights

The U.S. welcomed Angolan President Joao Lourenco’s efforts to curb corruption, improve transparency and help financial institutions clean up their books. U.S. Secretary of State Mike Pompeo confirmed at joint briefing with Angolan Foreign Minister Manuel Augusto. That the U.S. supports plans to privatize 195 companies and has “a deep desire to increase contacts throughout Africa and here in Angola”.

On February 15^th, the Angolan diamond company, Sodiam, announced gross sales of three million carats and USD 409 mn in the fourth quarter of 2019. The Secretary of State for Geology and Mines, Jânio Correia Victor, reaffirmed the Government's plan to increase production to 14 million carats per year, in order to meet the goals established in the National Development Plan 2018/2022.

The New Gas Consortium will start construction of a liquefied natural gas plant in Soyo at the end of this year, with the capacity to produce around 400 million cubic feet per day, announced by the Italian oil company, Eni, on February 13.

Country Report: Lebanon seeks help from IMF

Lebanon's debt continues to collapse as the Diab government debates whether to meet the payment of LEBAN 6.375 2020, which has its USD 1,200 mn maturity coming due on March 9, or delay a decision until after it has agreed to an IMF reform and restructuring program.

We can take the recommendations of the last Article IV published at the end of 2019 as an approach to the most probable measures the IMF would recommend to Lebanon in a rescue plan. The IMF would recommend fiscal adjustment measures such as eliminating subsidies to the electricity sector, implementing revenue measures and seeking financing from international donors.

Under the IMF’s normal Extend fund Facility (435% of IMF quota), IMF financial assistance to Lebanon would amount to USD 3.8 bn (equivalent to 6.7% of GDP). If Lebanon access to a program similar to Ukraine size, financial assistance could amount to USD 7.8 bn or 9x of its IMF quota. The amount could reach USD 9.7 bn if the IMF approves a financing similar to the Argentina program (11x of its IMF quota) and USD 18.9 bn if it is like Greek program (21x of IMF quota).

News Highlights

On February 12, was held a meeting between President Michel Aoun, Speaker of Parliament Nabih Berri, Prime Minister Hassan Diab, finance minister Ghazi Wazni and other members of the cabinet. The main point in the meeting was discussing whether Lebanese authorities are going to make the upcoming March Eurobond payment.

On February 12, Lebanon’s central bank lowered interest rates on dollars deposits and Lebanese pounds deposits. The central bank imposed a temporary interest cap of 4% from 5% on dollar deposits and 7.5% from 8.5% on Lebanese pound deposits. Interest rate on dollar deposits will drop to 2% for fixed-term accounts over one month, 3% for fixed-term accounts over 6 months, and 4% for fixed-term accounts for a year and more.

On February 12, President Michel Aoun during his meeting at Baabda Palace with a delegation of honorary consuls warned that “anyone who plunders the treasury” will be taken to trial.  President Aoun added that Lebanon entered a “new stage” after the government gained parliament’s vote of confidence.

Country report: Spending increases drove Chubut to fiscal distress

Although the government of the province had budgeted a positive primary balance for 2019 (1.3% of GDP), the province again accumulated a deficit of 0.7% of GDP until the third quarter of 2019. The fiscal imbalance comes from two factors: i) lower revenues from federal co-participation due to the fall in the Nation's revenues; ii) the increase in provincial spending. Until the third quarter of 2019, the province had only collected 73% of what was budgeted for federal tax revenues.

The 2020 budget was prepared using unfeasible and very optimistic assumptions: a GDP growth of 1% for 2020 and an inflation of 34%. The primary budget deficit for 2020 would be 0.5% of GDP (USD 54.5 mn). With this result, it is difficult for the province to meet its current commitments during 2020 without making a significant cut in spending, which will ultimately lead to greater social conflict, or requesting greater transfers to the Nation.

The province of Chubut must pay this year USD 58.8 mn for amortization, plus USD 54.1 mn in interest and USD 8.3 mn in amortization of the Trust Fund. In total, financing needs for 2020 are USD 175.7 mn. The fiscal situation of the province will press for a restructuring of its debt in the following months. Chubut needs a significant cut in spending to balance its fiscal accounts and to renegotiate debt.

News Highlights

Today, the Minister of Economy, Martin Guzman, announced the details of debt sustainability program before the National Congress. The minister said the cumulative fall in GDP was 4.5% in the last two years and public debt grew from 52.6% of GDP in 2015 to 88.8% in 2019. Guzmán said the IMF is responsible for Argentina's debt crisis, since the loan was used to pay debt and finance capital outflow. The Fernández Government does not propose a reduction of the primary fiscal deficit in 2020, since the government needs space to implement an expansive fiscal policy.

The Government of Argentina announced yesterday that it will postpone until September 30 the payment of DualAF20 bonds that mature tomorrow in order to "have more time to be able to restructure it in a manner consistent with the rest of the external debt restructuring". "As with the dollar-denominated debt, interest will be paid at maturity, while the amortization will be postponed, in this instance until September 30 of the current year," the Ministry of Economy explained in a statement.

According to the Ministry of Economy’s schedule, an IMF mission is expected to arrive in Argentina this week. During the third and fourth week of February, meetings with bondholders are expected to begin and will last 10 days. In the first week of March, Argentina will define the final structure of the offer and in the second the offer will be launched. The process would finish in March with the presentation of the final results.

This reprofiling of the local bond AF20, requested yesterday, once again affects the credibility of the government in the face of its errant approach before each bond maturity, hinting that there is no comprehensive strategy to tackle debt. Few investors will believe that the government will service payments for future bond maturities in Argentine pesos, which would significantly worsen its capacity to get new financing in pesos, especially as the market perceived that the government had the ability to cover the USD 1.6 mn service for the bond.

Country Report: A Presidential Election Preview

Next Sunday 16, municipal election will take place in the country. The contest will be the first electoral event after October’s primaries. The significance of the next municipal elections transcends its immediate importance; with just 3 months for the presidential and legislative assembly elections, the results will serve as an electoral thermometer for the May elections.

Polls suggest that the ruling party holds a wide margin for the municipal elections. However, when taking only the three polls carried out in January, we find that the gap in vote intention between the two leading parties decreases to 6.6 pp (40.2%-33.6%) while the vote intention of the third-placed FP slightly decreases to 5.0% and PRD’s increases to 4.5%. This suggests that the main opposition party, PRM, has been gaining ground.

We expect PLD and PRM to win the largest number of majors in Sunday’s elections, being the ruling party the main winner. Yet, these results will not display the wide margins of past elections.  However, with a weakened political base, Sunday's results could help the PLD to boost Castillo's vote intention in the face of presidential elections.

The debt of the Dominican Republic remains stable at levels of 110 cents per dollar showing little volatility despite the uncertainty usually generated by an election year. The low correlation of the Dominican debt with the rest of the EMFI debt has widened the gap in favor of the Dominican Republic to 18.3%.

News highlights

Fitch Ratings agency affirmed today that Dominican Republic’s higher-than-forecasted GDP growth, inflation within the central bank’s target despite higher peso depreciation in 2H19 and containment of current account pressures during 2019, support its sovereign rating and balance downside fiscal risks within the credit profile as the country enters the 2020 election season.

The Central Electoral Board (JCE) said on Monday that the report of the pre-election evaluation of the automated voting carried out by the International Foundation for Electoral Systems (IFES) guarantees “a solid footing” for coming elections. According to JCE president Julio César Castaños Guzmán, the voting system have been “purged, purified.”

Next week the Central Electoral Board (JCE) will publish the results of the audit to the automated voting system that was used in the October 6 primaries.

Central Bank’s governor Héctor Valdez reported yesterday that the consumer price index recorded a monthly variation of 0.33% in January 2020. Valdez indicated that the underlying inflation stood at 0.38% in the first month of the year. He explained that year-on-year core inflation stood at 2.41% below the lower bound of the target range (4.0%).

Crisis in El Salvador: Bukele's first setback

In November 2019, the Government submitted a loan request to the Legislative Assembly for USD 109 mn with the Central American Bank for Economic Integration (CABEI), for the financing of the 3rd phase of the Territorial Control Plan.

For the delay of the approval of the loan, on February 6, the Council of Ministers issued an Executive Agreement, invoking art. 167, ord. 7 of the Constitution, calling the Legislative Assembly extraordinarily to meet on February 9 and discuss the authorization of USD 109 mn loan. That day, only a few lawmakers attended the Assembly, while thousands followers of the President attended the call. Bukele entered the hemicycle accompanied by troops and police. This action was widely criticized by the international community. 

Bukele's decisions were oversized for the situation. Bukele not only increased tensions with the Assembly but lost support from the international community.

Country Report: Lenín Moreno keeps losing political support in the National Assembly

The departure of the 19 CREO assembly members from the legislative agreement on January 31, which provided a majority to the ruling party, brings tension within the AP ranks as they now have a deficit of at least 11 votes to pass laws in the remainder of the period. This number could increase if legislators from the BIN and BADI benches decide to withdraw as well from the alliance that was formed in May 2019. In that scenario, the government would need 32 votes from other parties to be able to pass any bill. The possibility of withdrawal of more AP assembly members furthers complicate the situation.

This scenario is delicate, given that the labor reform is still awaiting to be introduced in the Assembly by 2020, as well as the organic budget code and the reform of the central bank code through the organic monetary and financial code. These reforms are part of Ecuador's commitment to the IMF under the EFF agreement that was approved on March 11, 2019.

We believe the Executive will have to apply a strategy similar to the one used when it introduced the second version of the Urgent Economic Law to increase the chances of passing the proposed labor reforms. Back then, Finance Minister Richard Martinez had to meet with the assembly members to explain the importance and effects of the reform in terms of fiscal savings.

In any case, it is highly likely that opposition parties will be radicalized inside and outside the Assembly as the election draws near, in a strategy to hinder Moreno's management in the last year of his presidency. We do not discard a scenario in which correísmo assumes power again, mirroring the Fernández-Kirchner formula in Argentina, especially taking into account the delicate situation in which AP currently finds itself.

On Thursday, Moody's lowered Ecuador's credit rating. Markets were already pushing down the price of the country's debt to doubts over the rapid approval of pending legilsative reforms and difficulties in executing the asset monetization project.

News Highlights

Former President Rafael Correa goes on trial before Ecuador’s highest court starting Monday on charges of campaign finance fraud and accepting millions of dollars in bribes. Correa, 56, president for a decade through 2017, and 20 other defendants including former Vice President Jorge Glas, presidential legal adviser Alexis Mera and former Public Works Minister María de los Ángeles Duarte go before the National Court in a trial that’s expected to last several weeks. Any appeals of the verdict could extend to late 2020. Courts in Brazil, Panama and Peru have tried former presidents in connection with the scandal including Luiz Inacio Lula da Silva of Brazil and Panama’s Ricardo Martinet while four former Peruvian presidents have come under investigation.

The president of Ecuador, Lenín Moreno, confirmed that he will travel to the United States to meet with the president of that nation, Donald Trump. The bilateral meeting will be held on Wednesday, February 12, 2020. According to the Foreign Ministry, the official visit will address economic and commercial issues, investments, public security, development cooperation, education, culture, fight against corruption, drug trafficking, among other topics.

Strategy Viewpoint: Coupons, Coupons, Coupons

Current prices for Venezuelan debt show a significant disparity between PDVSA and sovereign bonds. On average, PDVSA bonds are trading at 7.8 cents per dollar, a very large 4.3 cents on the dollar discount to sovereign debt, which is trading at an average 12.2 cents on the dollar.

We compute past-due interests for each sovereign and PDVSA bond, and employ them to estimate the value of the potential claims that bondholders could pursue for each instrument. We further size these in relation to each bond’s price. This measure gives us the size of the nominal claim that can be bought per dollar of investment.

We find that high coupon bonds in the lower-priced PDVSA curve could have a significant advantage in an eventual restructuration process in which Venezuela recognizes past-due interests. Under this scenario, our bond selection would be PDVSA 12.75 2022 or PDVSA 9.75 2035 in the PDVSA curve and VENZ 13.625 2018 or VENZ 12.75 2022 in the sovereign curve.

If Venezuela negotiates only on the basis of principal claims, low price bonds would have an advantage. Our selection would be PDVSA 5.375 2027 or PDVSA 5.5 2037 in the PDVSA curve and VENZ 7.75 2019 or VENZ 13.625 2018 in the sovereign curve.

We note that restructuring debt is a matter of inter-creditor equity, and not just of debt sustainability. Unequal treatment could lead to significant litigation without providing any clear benefit for the country, which leads us to believe that a future administration would have little incentive to favor sovereign bondholders vs. those of PDVSA.

Country report: Resuming growth in 2020

Barbados has not yet managed to get out of the economic recession that began in 2018. In 2019, Barbados's real GDP would have fallen -0.1%, according to the latest estimate by the Central Bank. This figure represents a slowdown compared to the fall observed in 2018, -0.6%. Although it has recently recovered, the potential GDP growth of Barbados has been significantly low in the last 20 years.

Although the BERT plan allowed to solve several fiscal imbalances, through the increase of taxes, the reduction of subsidies to public companies and the restructuring of debt, these measures discouraged investment that decreased -5.4%, and public consumption and private, which fell -0.2% and -2.3%, respectively.

The economic growth forecast for Emfi Securities for 2020 is 0.3%, which implies an acceleration from 2019 (-0.2%), mainly due to higher private consumption. In 2020, interest payments on the external debt will be resumed, which will reach USD 36 million and must pay USD 30 million for the amortization of the 2021 Bond, which will put more pressure on public finances.

News Highlights

The Ministry of Energy and Water Resources has issued effective offshore exploration licenses for the Carlisle Bay and Bimshire blocks to BHP Petroleum. The Minister of Energy and Water Resources, Wilfred Abrahams, said: “While the Government of Barbados aggressively pursues renewable and alternative energy initiatives, it also recognizes the importance of diversifying the island's energy portfolio to include the development of oil and gas in high sea.

On January 20, Prime Minister of Barbados, Mia Mottely, rejected the invitation of the Secretary of State of the United States, Mike Pompeo, to a meeting of foreign ministers in Jamaica, considering that the invitation made only to some selected countries and not the entire Caribbean Community (Caricom), seeks to divide the region.

The Ministry of Health and Welfare has categorically stated that there are no cases of coronaviruses in Barbados at this time. No activity has been paralyzed in relation to the coronavirus, as some rumors claimed.

Country Report: Economy starts showing signs of stabilization, but risks of a slowdown remain high

During the second quarter of 2019, the economy was hit by the Easter Sunday terrorist attacks. GDP grew at a slower pace of 2%, from 4% in the first quarter of 2019.  GDP grew 3% y-o-y in the third quarter, the recovery is explained by a stronger domestic demand.

After the decline of 71% (y-o-y) in May 2019 caused by the terrorist attacks, tourists arrivals started recovering gradually, with the decline moderating to 4.5% (y-o-y) in December. Authorities’ efforts to normalize security conditions explained the stabilization.

Debt payments of 2019 were fully financed by international bond issuances in March (USD 2.4 bn) and in June (USD 2 bn). International reserves increased thanks to the issuance of sovereign bonds in 2019. However, external vulnerability remains high with relatively high short-term liabilities. Sri Lanka needs to correct fiscal and external imbalances so that economic growth is sustainable in the medium term and to put debt-to-GDP ratio on a downward path.

In the short term, the detection of the first case of coronavirus in a Chinese tourist in January could jeopardize the recovery of the tourism sector and the economic recovery from the attacks of 2019. China is one of Sri Lanka’s top five international tourist generating markets. So far, the authorities have reinforced airport controls to prevent more tourists infected with the virus from entering; four thermal detectors were installed at the Bandaranaike International Airport. However, we do not rule out the possibility of more restrictive measures to decrease the risks associated with this epidemic.

News Highlights

Today, Prime Minister Mahinda Rajapaksa increased the minimum daily wage of plantation workers with effect from March 01, 2020.  Plantation workers will be granted a minimum daily wage of LKR 1,000, from LKR 750. Plantation companies refused to increase the wage saying they could not afford it. Agriculture makes up 7% of Sri Lanka’s GDP.

Tourists arrivals dropped 7.4% m-o-m to 226,094 in January 2020. Arrivals from China fell 15%, according to the Chairman of the Tourism Development Authority Kimarli Fernando. The country is expecting a sharper drop in February due to implementation of arrival visas for Chinese visitors. Sri Lanka has already applied procedures to handle Chinese visitors, with separate lines for immigration, thermal screening and doctor examinations in the airport to detect coronavirus infections.

Yesterday, Central Bank of Sri Lanka (CBSL) cut its lending rate to 7.5% from 8% while the deposit rate was also cut by 50 basis points to 6.5% for the third time since the April 2019 terrorist attacks. The Monetary Board said in a statement that “it is essential that market lending rates reduce further in order to support the envisaged pickup in credit growth and economic activity”.

Country Report: Oil and gas output remains insufficient for domestic consumption

Egypt stands out for being sixth in the African ranking of the largest proven oil reserves with 3.3 billion barrels and the third in proven natural gas reserves with 75.5 trillion cubic feet. Oil and gas production, together with oil refining, accounts for almost 30% of total GDP. On the other hand, exports of both commodities constitute 40% of the total. Broadly speaking, the growth of the economy is largely linked to the performance of oil and natural gas activities.

Natural gas production decreased 32% between 2010 and 2016, together with a decrease in proven reserves – as a result of maturing oil fields and a lack of new discoveries to fully offset the decline – until 2015 when the Italian oil company Eni made the largest gas discovery in Egypt and in the Mediterranean Sea: the Zohr field. In 2017, production registered a recovery of 21% after the Government choose to accelerate the development of the fields and the Zohr field started production.

In parallel, the steady decline over the past decade in crude oil production is the result of the overall decline in output from its legacy onshore fields. Egypt has maintained a sustained level of exploration activity, but many of the significant finds have been natural gas rather than oil.

Although the oil and natural gas output has restarted an uptrend, there is a historical gap between production and consumption, reflecting the weakness in the refining sector which is not complex enough to produce higher-end products such as diesel, LPG, and gasoline; instead, they require higher imports to make up for the shortfall in domestic supply.

News Highlights

Non-oil private sector growth in Egypt slowed to its lowest level in almost three years, dashing hopes for a rebound as weak consumer demand offset the potential boost of single-digit inflation. The IHS Markit Purchasing Managers’ Index fell for the sixth consecutive month in January to 46, well below the 50 level that marks an expansion in business activity. The slump came even as inflation remained well within the central bank’s target range of 9%, plus or minus 3 percentage points by the fourth quarter of 2020. The downturn dealt a setback to Egypt’s campaign to row the private sector as a key part of the next phase of its sweeping economic program launched in 2016.

The Egyptian military is turning to the country’s newly created sovereign wealth fund to attract private investors to buy stakes in some of its assets and companies, the two organisations said on February 3. The military controls dozens of companies, ranging from agriculture and industry to services and mining, through several entities, including the National Service Projects Organisation (NSPO). The NSPO agreed with the Sovereign Fund of Egypt on Monday to help it prepare the assets of its companies for sale and to promote them, the fund’s CEO Ayman Soliman told reporters at a signing ceremony at the council of ministers.

The Egyptian and Russian foreign ministers agreed in a phone call on Tuesday on continued cooperation to achieve a fair and comprehensive solution for the Palestinian cause, a statement by the Egyptian foreign ministry read, in the wake of controversy over a new US peace plan. Foreign Minister Sameh Shoukry received a call from his Russian counterpart Sergei Lavrov in which they discussed developments in the region, including in Palestine, Syria and Libya. The two ministers agreed on the need for a comprehensive solution in accordance with international legitimacy accords, to ensure achieving peace and stability in the whole region, foreign ministry spokesman Ahmed Hafez said.

Flash Note: Incumbent party beaten down in municipal elections

Costa Rica held elections for 6,138 municipal authorities yesterday. Abstention was 63.6%, the lowest reported in a municipal election so far. However, in San José the most populous municipality in the country abstention reached 74.6%.

Total results will be announced today by the Supreme Electoral Tribunal (TSE). Initial results based on a 11pm partial tally of votes showed that the opposition National Liberation Party (Partido de Liberación Nacional, PLN) is the major political force in the country, with 70,303 votes (28.9%), followed by Social Christian Unity Party (Partido Unidad Social Cristiana, PUSC) with 34,305 votes (14.1%), and the incumbent Citizen Action Party (Partido Acción Ciudadana, PAC) in the third place with 24,252 votes or 10.0%.

Elections were marked by a dispersal of political power. While in 2016 the three major parties controlled 85.4% of total mayors in the country (70), in 2020-2024 period the number fell to 74.4% (61).  This is in line with the pre-existent trend to the rise of regional political parties. According to the preliminary results, the 82 mayors will be under control of 22 different political groups. In 2010, nine parties were in power and, in 2016, the figure was 14.

Country Report: Much Ado About Nothing

On Thursday January 30, Bloomberg published a story referring to a “a little-known clause” named the “prescription clause” that is included in the prospectus of every Venezuelan sovereign bond issued since 2005. The main point of contention on the interpretation of the clause lies on whether it modifies the standard statute of limitations for bonds governed by New York law.

In total, 11 out 15 Venezuelan sovereign bonds include it in their prospectuses. This means that the clause affects USD 29.54 bn of face value or 81.8% of the total amount outstanding. Only the Venz 9.25% 2027, Venz 13.625% 2018 and Venz 9.375% 2034 do not have the clause; these bonds together amount to USD 6.55 bn.

Taking into account these figures and the chronology of missed payments by the Venezuelan government, the first bonds that would potentially be exposed to the clause’s effect would be Venz 7.75% 2019 and Venz 8.25% 2024, both of which had missed coupon payments on October 13, 2017. Then come Venz 7.65% 2025 and Venz 11.75% 2026, which missed coupons on October 21, and Venz 9% 2023 and Venz 9.25 2028 (on November 7).

While there is significant uncertainty around the implications of the “prescription clause,” we believe that the initial report overstated their potential implications. As Weidemaier and Gulati point out, the clause makes more sense if understood as protection for the fiscal agent or trustee.

News Highlights

Venezuelan crude exports from the main port of Jose are expected to drop this month amid lower demand from China, its second-biggest customer. Tankers will load 658,621 barrels a day from Jose in February, according to a preliminary loading program. That’s down 10% from last month, according to data compiled by Bloomberg. The drop in Venezuelan exports is the latest effect of the coronavirus. Chinese demand for Latin American crudes has dried up.

Key joint ventures in western Venezuela are closing taps in the face of storage constraints created by another backlog at PdV terminals, according to production data obtained by Argus. The trend has pushed output back below 800 kbd, compared with 820 kbd in December.

Venezuela’s opposition-run congress said last week it had set aside USD 20 mn held in accounts in the United States to pay for litigation abroad as part of efforts to protect the country’s offshore assets from lawsuits by creditors. Lawmakers from the Justice First opposition party (Pimero Justicia, PJ) objected to the measure on the grounds that it did not clearly identify what cases would be financed. Jose Ignacio Hernandez, whom opposition leader Juan Guaidó has tapped as a special prosecutor, said in a statement that he will not use the funding because the vote authorizing their use did not have the support of the entire opposition.

The Venezuelan Creditors Committee, which has Mark Walker and Richard Cooper as some of its advisors, published a statement today referring to the “prescription clause.” The statement said that the statute of limitations on some Venezuelan bonds that have a prescription clause “is not triggered if the issuer fails to cause interest or principal to be paid to the fiscal agent.” 

Strategy Viewpoint: Introducing our EMFI Emerging Markets Index

In this report we present an index representing the sovereign bonds of the 16 high-yield countries we cover, as well as individual country-level indices. Henceforth we will include our index in our performance sections in our Country Reports

Our approach abstracts away differences in coupons, term and durations by creating a directly comparable measure. This measure is the theoretical price of zero-coupon bond for constant modified duration of 5 years.

Our equal-weight aggregated index (excluding Venezuela) shows a 2.6% price appreciation over the last year, 1.9% over the last three months and 1.1% over the last month. The outstanding-weighted index, on the other hand shows a 2.7% fall over one year, but a 1.9% recovery over the last 3 months and 0.3% over the last month.

Diverging results in the EW and OW indices over the 1-year period reflect the notable underperformance of Lebanon and Argentina.

Suriname is the next Guyana?

On January 7, oil companies Apache Corporation and Total said they've made a major oil discovery offshore at the Maka Central-1 well drilled offshore Suriname on Block 58, near to Guyana’s border, on trend with Exxon’s Stabroek block.

The IMF estimates that the fiscal deficit reached 8.6% in 2019 (70 basis points more than in 2018). Additionally, it showed a current account deficit of 6.1% in 2019. Recently, the external account deficit has been financed by higher foreign direct investment from oil sector. The authorities have planned to apply fiscal measures, like reform electrical sector, reducing subsidies in the next years. However, we don’t think that this was enough to eliminate twin deficits.

So far, we believe there will be an improvement in the Suriname oil sector. However, it is too early to say that Suriname will live an economic miracle like the one Guyana is living. Before the Apache oil discovery, there were severe disappointing results for explorers.

News Highlights

Staatsolie Suriname Tout Lui Faut refinery set to shut for multiunit maintenance starting the second week of February, people familiar with operations says.

Suriname's long-term foreign currency debt rating was downgraded by Fitch to CCC from B-. Suriname's general government debt to GDP ratio is now estimated by Fitch to have risen to 80.9% at year-end 2019 (up from 72.1% in 2018). Suriname's government deficit has remained structurally large during 2015-1H2019 and a fiscal adjustment is unlikely until 2H20 or 2021 following the elections.

On January 22, Desi Bouterse's appearance before the War Council was postponed due to his twenty-year prison term as the main suspect in the December 1982 murders. This is because the War Council was not complete. . The content of the case will be further discussed on March 31.

Country report: Reforms start to correct the external imbalance but slow down the economy

GDP growth slowed to 3.3% in 2019, a 2.2 pp decline compared to the previous year. The slowdown was led by the stabilization measures undertaken by the authorities to address the twin deficits.

After a significant deterioration of the current account deficit between 2016 and 2018, (+5.2pp), the external position improved considerably in 2019. It declined to 5.4% of GDP in 2019, from 7% in 2018. This improvement was mainly driven by lower imports (imports of goods declined by 7.4% while services fell by 14.9%).

The outlook remains positive in 2020, but with potential risks that could undermine the economic reforms undertaken by Imran Khan’s administration. Among the risks facing Pakistan's economy is weaker growth and the need for a significant fiscal adjustment in the coming years that could cause social distress. Resistance to reform from vested interest groups could undermine the program's fiscal consolidation strategy and put debt sustainability at risk.

News highlights

On Tuesday, State Bank of Pakistan (SBP) announced a trade financing plan for PK 200 bn (USD 1.29 bn) to help export industries overcome the challenges posed by a slowing economy. The financing will come in the form of concessional loans in Long Term Financing Facility (LTTF) and Export Financing Scheme (EFS).

According to the Heritage Foundation, Pakistan’s economic freedom score improved by 0.6 point to an overall score of 55, ranking the economy 131^st in the 2019 index. However, the country still is ranked 32^nd among 43 countries in the Asia-Pacific region, and its overall score is below the regional and world averages.

Today, Pakistan will host its first first-ever conference to promote trade and commercial links with African nations. "The conference will provide a platform for G2G (government-to-government) and B2B (business-to-business) interaction. It will be an important opportunity for Pakistani and African businesses to interface, identify the areas for enhanced engagement and develop proposals for customized economic collaboration," the Foreign Office said.

Country Report: Reform Is Not Enough

In the last decade Central Government fiscal figures have been deteriorating steadily, going from a surplus of 0.2% of GDP in 2008 to a deficit of 5.9% in 2018. Given the performance of the fiscal figures, the country has been discussing a fiscal reform for nearly two decades. A reform bill was finally approved on December 3, 2018.

Broadly speaking, the fiscal reform fell short in the attempt to offset the increasing debt service burden. Between January and October, the primary balance did improve and went from 2.1% deficit in 2018, to 1.8% in the same period of 2019; however, the global deficit of the central government reached 5.4% of GDP, 0.3 pp above the 5.1% registered in 2018

Although the Government continues to trust that the positive effects of the reforms will pay off, in the short term the recurrence of the fiscal gap and a steep amortization schedule will keep gross financing needs growing and will require additional indebtment in the domestic market, at short maturities and high interest rates.

From 2010 to 2018, financing needs have represented an average of 10.6% of GDP. For the year 2019 and 2020, they are estimated to reach 12.3% and 13.0% of GDP respectively.

The Legislative Assembly only authorized the issuance of USD 1.5bn in international financial markets during 2020, but we expect the government to push for further Eurobond issuances, even as it seeks lower-cost funding from multilateral institutions.

News highlights

Next Sunday, February 2 will take place municipal elections to choose mayors, councilors, district trustees, district councilors and in eight mayors of the autonomous districts. 6,138 positions will be elected. The biggest challenge for the parties will be to overcome abstentionism which has been historically high, although according to a survey by the Center for Research and Political Studies (CIEP), 63% of people of legal voting age are planning to vote on Sunday’s elections.

US Secretary of State, Michael Pompeo, visited Costa Rica last week, as part of Pompeo’s tour for the region, whose objective is to “renew the deep United States commitment to its hemispheric neighbors.” This was the first visit to the country in 10 years. During the meeting with President Alvarado and the Minister of Public Security, Michael Soto, Secretary Pompeo discussed cooperation to combat transnational crime and the strengthening of regional security.

Today came into force a bill to regulate strikes and to provide legal certainty about the strike and its procedures. According to the text of this law, unions will have until February 27 to register an email in the Ministry of Labor in which they will be notified if a strike is classified as legal or illegal.

Country Report: How Will Erdoğan Confront Turkey’s Economic Challenges?

In 2019, the lira continued losing value against the dollar as a result of the trade war between the US and China, as many investors chose to reduce their risk assets. The exchange rate reached TRY/USD 6.19 in May, and the currency depreciated 14.8% in 2019.

President Erdoğan defends the unorthodox theory that a reduction in interest rates leads to a reduction in inflation, contrary to standard economic theory. Since Murat Uysal took office as the new governor of the monetary authority in July 2019, the monetary policy rate accumulates a reduction of 12.75 percentage points (pp), from 24% to 11.25%. The CBRT announced that it would increase the number of monetary policy committee meetings, from eight last year to twelve in 2020.

Ironically, after the GDP contracted 2.6% and 1.5% in the first two quarters of 2019, in 3Q19 the economy had a slight recovery of 0.9%. Similarly, inflation unexpectedly began to slow down, reaching its lowest level in two years in September (9.3%, y-o-y). However, it is wrong to think that this result is indeed explained by the aggressive policy of rate cuts of the Central Bank.

In the New Economy Program 2020-2022, there is a 5% growth projection for the next three years, as well, they are committed to an inflationary slowdown and a controlled fiscal deficit. These figures are unrealistic since Turkey has not adopted a reform package that causes economic growth driven by the country's productivity, rather than the expansion of public spending. For this 2020 we estimate that GDP growth is between 2% and 3%, and that the stability of the lira is fragile given the geopolitical context so that inflation could increase again.

News Highlights

"We reiterated that a solution to the conflict in Libya cannot be achieved through military means," Erdogan said during a press conference with his Algerian counterpart, Abdelmadjid Tebboune, on January 26. Erdogan earlier in the day lambasted eastern-based military commander Khalifa Haftar for violating a fragile truce between his Libyan National Army (LNA) and forces loyal to the UN-recognised Government of National Accord (GNA). Erdogan's trip to Algeria, part of an African tour that will include stops in The Gambia and Senegal, comes amid a renewed push by the international community to end Libya's long-running civil war.

The death toll from a 6.8-magnitude earthquake that hit eastern Turkey rose to 41 people on Monday, after rescue workers pulled the last two missing victims from the rubble three days after disaster struck. The powerful quake hit the eastern province of Elazig on January 24, toppling scores of buildings and setting off a race against time to pull trapped women, children and men from the wreckage in freezing temperatures.

Turkish gold production by the end of 2020 is estimated to surpass the record high level in the history of the Turkish Republic that was made last year, Hasan Yucel, president of the Turkish Gold Miners Association, told Anadolu Agency on Sunday. Production in 2019 peaked at 38 tons but is estimated to reach a volume of 45 tons by the year-end, Yucel said. "Turkey can easily produce 45 tons of gold by the end of the year, thanks to encouraging private sector investments and the number of production facilities that have become operational at the beginning of 2020”.