Economic & Country Risk ReviewFor the ICTF’s Global Credit Professionals Symposium

Chicago, April 16, 2013By H. Belcsak, President, S.J. Rundt & Associates, Inc.

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Nuclear Proliferation

Islamic Terrorism

BRICS Unity?

The Money Machine

Megatrends

Nuclear Proliferation• The threat from North Korea• Dangers in Pakistan• Iran in the background• Sunni-Shiite confrontation

Islamic Terrorism• Al Qaeda metastasized• A world-wide net• Aqab, Aqim, Al-Shabaab, Boko

Haram• From local terrorism to attacks

abroad• Can these movements be

defatted?

BRICS Unity?• The Durban meeting• Brazil-China accord ($30 billion)• $100 billion currency fund (BoP or

currency crisis) 41-18-5• Development bank• 43% of world population, $4.4 trillion in

reserves, $282 billion trade, $263 billion FDI

• But…How will the currency fund operate? How will bank be funded? Pay-in for bank? China’s role? More differences than similarities

The Money Machine• Japan’s unprecedented

experiment• Fed, BofE, ECB• Asset inflation• Currency wars• Protectionism• No exit plans• Potentially grave

consequences down the road

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Latin America

Our Backyard

General• Two policy trends persist• Brazil-style approach is

winning, moderate inflation• Change of leadership in

Venezuela will not make much difference

• Lessened upward pressure on currencies

• Difficulty with economic unions such as Mercosur

Argentina• Deal for bond holdouts?• Pressure on peso• Devaluation inevitable• Kirchner can still win, but

challenges from within Partido Justicialista

• Price and pay freezes• Fed-up farmers

Chile• Slight slowdown (4.8% for

2013)• Poor outlook for copper• Diversified economy• Inflation just 1.5%• Interest rates relatively high• Elections in November (will

Bachelet run?)

Colombia• Negotiations with FARC halted• Unacceptable demands• Rash of new attacks• Impact on oil – coal due to

strikes, but no threat to international liquidity ($37 billion in reserves)

• GDP +4%, inflation 1.83%• Interest rates low, peso softer

Mexico• Resilient economy (3.5% this

year) inflation 3.7%• Peso +8.4% in 2012, now

slowed ascent• PRI leadership brings no major

shift in direction• Re-shoring• “Pact for Mexico”

Peru• Remarkable performance past

ten years• GDP nearly doubled• Strong capital inflows• Reserves $64 billion• No need to worry about the

external accounts• President Humala and mining

investment

Venezuela• Maduro victory was narrow• Challenges from Capriles and

from within• Increased Cuban dominance• No improvement in relations

with US• New Sicad FX market• Won’t remedy dollar shortages,

food shortages

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The euro is still in trouble

Europe

General• The importance of the Cyprus

bailout

France• 75% tax rate shot down• No big blow for budget, but

personal setback• Unemployment 10.6%, going

up• 27% job approval ten months

into Hollande’s tenure• Public spending = 57% of

national wealth, tax burden = 46% of GDP

Germany• Mixed economic news• Exports remain vital• Now drives things in Europe• A mean power?• September elections• The outcome will be interesting

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Middle EastArab Summer

Egypt• Keystone• Sliding toward crisis• Morsi the autocrat• Opposition plans to boycott

elections• Shortage of food, bread

rationing• Burnt through reserves, despite

help from many sides

Iraq• No external account problems• GDP gain 12%-13% in 2012• But all oil-based• Maliki regime keeps losing

credibility• A number of simultaneous

crises• Secessionist trends

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Asia

A Source of Growth

China• Weak 2013 start• But still 7.0%-7.5% for the year• Imports help global economy• Concern about inflation now

greater than that for slowed economic growth

• Yuan’s role as international payment medium growing fast

Japan• Bold monetary experiment• Needs structural changes, too• GDP just 0.2% fourth quarter• CPI -0.3%• Yen down 29% since

September, warnings from other countries

• J-curve effect

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On the Verge of a Boom

Africa

Africa• The Colonial curse• Difficult to do business• Oil

• Old• Angola, Nigeria,

Congo Brazzaville• New

• Ghana, Uganda, South Sudan

• Mining• Mozambique, DR of the

Congo, Tanzania, Zambia

• Agriculture• Ethiopia, Kenya,

Malawi,

Open Discussion