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Argentina set for economic shake-up under Javier Milei – Industry roundup: 21 November

Argentina set for economic revolution after Milei election victory

Argentina is set to close its central bank, introduce the US dollar as its official currency rather than the peso, reduce taxes and privatise most state industries, following the weekend victory of right-wing libertarian candidate Javier Milei in the country’s presidential elections.

Milei, who has been given the nickname of El Loco (The Madman) is a former television pundit and also once worked as an economist for HSBC Argentina who became a congressman only three years ago was the clear winner of the run-off contest with almost 56% of the votes; putting him more than 11 points ahead of his rival, the sitting economy minister, Sergio Massa.

The election results reflect a significant political shift in Argentina, influenced heavily by Milei's support for bitcoin and strong opposition to the central bank, which he labels a "scam" and an instrument for politicians to levy inflationary taxes on the populace. His views have found resonance amidst Argentina's daunting inflation crisis, with the Argentine peso (ARS) experiencing 140% annual inflation over the past year.

The president-elect sees bitcoin as a key to reviving the economy, advocating for monetary control to return to the private sector. However, analysts note that Milei has not yet proposed making Bitcoin legal tender in Argentina.

“Today begins the reconstruction of Argentina,” Milei told his supporters as the result was announced. “We will embrace a model of liberty to become once again a world power.”

The result, in which Milei won all but three of Argentina’s provinces, represents the biggest defeat in its history for Peronism — the statist system of government named after its founder President Perón — which has governed the country for most of the past 75 years. Milei portrayed Peronism in his victory speech as a “model of decadence” which he said had done nothing but impoverish the people, while enriching its own political class.

The vote was held in the midst of a grave economic slump. Rampant inflation and a weak currency has led to more than 40 % of the population living in poverty. Half of all Argentinians are on some form of benefit, but the value of most of that assistance has been eaten away by inflation. “I know how to exterminate the cancer of inflation,” Milei proclaimed during last Sunday’s final presidential debate which most pundits believed Massa had won.

Massa, as a serving economy minister, failed to escape direct blame for the crisis and the result can partly be explained as a punishment vote against the left-wing Peronist government of the sitting president, Alberto Fernández, and his vice president, Cristina Fernández de Kirchner. Massa’s own policies included the proposed launching of a central bank digital currency (CBC) to combat Argentina's inflation crisis.

There has been speculation that Milei might proceed relatively slowly with some of his plans once actually in power, given that he will not have a majority in congress. But in his victory speech he suggested that speed will be of the essence. “Unless we move quickly with the reforms this country needs, we will be in the worst crisis in our history.” he said.

One of Milei’s many controversial plans that he set out as a candidate was that he would cut all his government’s relations with China, one of Argentina’s main trading partners. He did not go into details in his victory speech beyond stressing that he would “work shoulder to shoulder with nations of the free world”.

The incoming president has already listed the vast, part-nationalised energy company YPF, along with several media outlets under state control, as early targets for government sell-offs once he takes office next month. “Everything that can be in the hands of the private sector will be in the hands of the private sector,” he said.

Milei’s success, alongside the recent election of conservative governments in Paraguay and Ecuador, could mark the end of what had been dubbed a second “pink tide” of left-wing governments in Latin America. At the beginning of this year almost all the countries in the region had left-wing leaderships, a phenomenon which had drawn parallels with a similar situation in the early 2000s.


China keeps lending benchmark rates on hold

China left benchmark lending rates unchanged at this month’s fixing, in line with expectations, as a weaker yuan continued to limit further monetary easing and policymakers waited to see the effects of previous stimulus on credit demand.

The one-year loan prime rate (LPR) was kept at 3.45% and the five-year LPR was unchanged at 4.20%.

Recent data shows the recovery in the world’s second-largest economy remains patchy with industrial output and retail sales better than expected but deflation gathering pace and few signs the struggling Chinese property market will revive in the near term.

While the economy still needs more policy stimulus, an escalation of monetary easing would add unwanted downside pressure on the Chinese currency.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

In a poll of 26 market watchers conducted last week, all participants predicted no change to either the one-year or five-year LPR.

The steady fixings came after the central bank kept its medium-term interbank liquidity rate unchanged last week. The one-year LPR is loosely pegged off the medium-term lending facility (MLF) and market participants typically see changes in the MLF rate as a precursor to adjustments in the LPR.

The People’s Bank of China (PBOC) injected 1.45 trillion yuan (US$200 billion) worth of one-year MLF loans into the banking system six days ago but kept the rates on those loans unchanged. The liquidity boost meant that a net CNY 600 billion of cash was injected into the banking system, the biggest monthly increase since December 2016.

“Policymakers may want more time to access the impact of the recent repricing of existing mortgage contracts before they make further changes to the benchmark rate,”  Julian Evans-Pritchard, head of China economics at Capital Economics, commented in a note released before the LPR fixing.

“The big picture though is that, with economic momentum weak and downward pressure on the renminbi reversing, we think rate reductions will come before long,” he said, expecting China to lower the lending benchmark by 20 basis points at the end of Q1 2024.

The yuan has recouped some of its year-to-date losses after losing more than 6% against the US dollar at one point in September.

China remains an outlier among global central banks, having loosened monetary policy to shore up a faltering recovery but further rate cuts would widen the yield gap with the US, risking yuan depreciation and capital outflows.

The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks, which submit proposed rates to the central bank every month.


Economists demand full second term for Bank of Israel governor

A group of Israel’s senior economists has appealed to lawmakers, including war cabinet minister Benny Gantz, to ensure that the term of the current Bank of Israel Governor Amir Yaron, which officially ends next month, is extended by another full five-year term.

Following the outbreak of the fighting triggered by Hamas’s October 7 terror onslaught that killed over 1,200 in Israel’s largest-ever mass casualty event, Yaron reassured investors that he would remain in office until at least the end of the current emergency period to help cope with the challenges to Israel’s wartime economy.

“Israel’s economy needs stability and professionalism in these difficult days,” the group of economists said. “Failure to extend the governor’s term of office may cause tremendous damage that is irreversible.”

Over recent weeks the forum of economists has sent letters to Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich asking the government to make professional and responsible decisions, including the extension of Yaron’s tenure, which have remained unanswered. They say that that they are turning to Gantz and the heads of the coalition to immediately stop what they called the government’s “scandalous conduct” regarding the economy.

By law, Yaron can be appointed for one additional term of five years as Bank of Israel governor subject to the government’s recommendation to the president.

The group of economists called on lawmakers to ensure that Yaron, whom they called the “responsible adult and senior professional figure” of the Israeli economy, is given another full term of five years.

“The time has come to think about the good of the State of Israel and its future as a progressive country,” the group demanded.

Yaron, who is due to end his term on December 23, was expected to make a decision about whether he will continue with another five-year term after the Jewish High Holidays, which ended the day the war broke out between Israel and the Hamas terror group.

In the weeks before hostilities, there was much uncertainty over whether Yaron would request another term and if lawmakers would want to keep him in the job.

Yaron, who took up the post as governor in 2018, has been critical of the government’s proposed judicial overhaul earlier this year. More recently, the Bank of Israel criticised the government’s war budget plan to tackle the costs of the ongoing fight against Hamas,


World Bank to allocate US$12 billion support for Kenya over three years

The World Bank has announced a commitment to disburse over 1.8 trillion Kenyan Shilling (KES) (US$12 billion) over the next three years to assist the East African nation in tackling serious financial challenges.

The move came four days after the International Monetary Fund (IMF) pledged a loan of KES162 billion to Kenya.

In a report published on November 17, the World Bank waned that Kenya was at risk of losing up to 7.25% of its GDP by 2050 if decisive measures were not taken to adapt to and mitigate the adverse effects of climate change.

The financial injections are expected to help the country navigate its financial challenges by lowering the country’s overall cost of borrowing and easing the burden of upcoming debt repayments, particularly the 2024 and 2027 Eurobond payments.

“So subject to the World Bank directors’ approval of new operations and to factors which may affect the bank’s lending capacity, this applies to a total financial package of $12 billion over the next three years,” said the World Bank in a press statement. The bank says that Kenya is now accessing US$2 billion in funding every year and US$4.4 billion is available to disburse. One of the imminent challenges facing Kenya is a substantial payment of over US$2 billion due next year.

This payment is likely to put pressure on the country’s reserves, which currently stand at US$6.8 billion. Analysts predict that this significant outflow could potentially reduce Kenya’s foreign exchange reserves by US$2 billion, necessitating careful financial management to maintain stability. Kenya’s exclusion from the international bond market due to high interest rates has further complicated its financial landscape.

The World Bank’s commitment will be welcomed by a nation grappling with escalating debt levels. Kenya’s public debt stood at KES10.5 trillion in September 2023, an increase from KES8.5 trillion in May 2022.

Apple Pay introduces open banking feature for UK customers

Apple Pay has launched a new feature for customers in the UK, allowing them to connect their accounts to eligible debit and credit cards in their Apple Wallet, via open banking technology.

The new feature will enable UK customers to access their “most relevant” account information regarding their debit card balance and transaction history, including payments, deposits and withdrawals, at the time of making a purchase using Apple Pay in-app or online.

As part of the open banking initiative, Apple says it been “working closely” with banks to make the feature available to multiple financial institutions in the UK, including Barclays, Barclaycard, First Direct, Halifax, HSBC, Lloyds, M&S Bank, Monzo, NatWest and Royal Bank of Scotland.

By enabling users to conveniently access their most useful account information within Wallet and at the time of their purchase, they can make informed financial decisions and better understand and manage their spend,” comments Jennifer Bailey, vice president of Apple Pay and Apple Wallet.

Bailey adds that by working with UK partners under the open banking initiative, Apple hopes to “help users better their financial health and provide more ways in which banks can deepen their relationships with customers”.


Bank of Japan needs change of policy to support yen, Deutsche Bank says

The Bank of Japan (BOJ) must step away from its recent policy of quantitative easing (QE) and negative rates to support the yen, a Deutsche Bank strategist says.

“For the yen to do something meaningfully better you really need more of a dovish pivot in every other central bank, or the Bank of Japan really has to start walking away from quantitative easing and negative rates,” Tim Baker G10 FX strategist at Deutsche Bank told broadcaster CNBC. 

A QE policy is when a central bank tries to increase the liquidity in its financial system by buying long-term government bonds from the country’s largest banks.

The yen (JPY), which recently traded at 148.98 against the dollar low, will reach a 33-year low against the US currency if it weakens below 151.94.

The BOJ has used various QE tools to reflate the Japanese economy since the early 1990s.

“There’s so much QE they’re (BOJ) doing now, more than the Fed and ECB ever did. But the BOJ has been behind the curve on inflation, they keep having to upgrade their numbers, they keep getting surprised. They just seem to be going a bit too slow,” Baker added.

The central bank has been cautious in unwinding its long-hld ultra-easy moneyart policy, wary of any premature moves that could potentially derail recent nascent improvements in the Japanese economy.

Late last month, the BOJ said it would allow more flexibility in its yield curve control policy by altering the language used to describe the upper limit of the 10-year Japanese government bond yield.


OCBC makes first acquisition under CEO Wong with Indonesia buy from CBA

Oversea-Chinese Banking Corp (OBBC) has agreed to buy Commonwealth Bank of Australia’s (CBA) Indonesian banking unit, marking Chief Executive Officer Helen Wong’s first takeover since she took the helm two years ago.

Australia’s largest bank will sell its 99% stake to OCBC Bank, through its Indonesian subsidiary PT Bank OCBC NISP(PTBC) for about A$220 million ($142 million), CBA said in a statement. Completion of the deal, subject to regulatory requirements, is expected in Q2 or Q3 of 2024, the bank said.

Alongside the PTBC acquisition the company also set plans to buy 1% of the remaining shares of PTBC from its respective shareholders. Under the acquisition, PTBC will be merged into OCBC Indonesia, and both banks will work together for the smooth migration of customers and employees to OCBC.

PT Bank OCBC is the fourth largest private bank by asset value in Indonesia, with a total consolidated resource of $21.5b (IDR247.0t), a 12 percent increase from the previous year. Its capital adequacy ratio (CAR) has endured at 23.2 percent, building up its growth throughout time.

The market for PTBC is targeted at retailers with small and medium enterprises. The bank’s net asset value and net tangible asset value are at rupiah (IDR) 4.1 trillion (US$356 million) and IDR3.5 trillion respectively. The acquisition will strengthen the relationship that both parties have with their clients.

Customer businesses and transactions will remain unaffected by the proposed purchase, expected to last until 31 December 2023.


Santander Private Bank offers bitcoin, ethereum trading for Swiss clients

Santander Private Banking International, part of Spain’s Banco Santander, is reported to be offering high-net-worth (HNW) clients with Swiss accounts trading and investing in the major cryptocurrencies bitcoin (BTC) and ether (ETH), according to an internal announcement.

Over the comingl months, Santander will offer additional cryptocurrencies that meet the bank’s screening criteria, the announcement said.

Santander confirmed that the service is provided only upon client request through relationship managers, and the assets are held in a regulated custody model in which the bank stores the private cryptographic keys in a secure environment.

The move by the group is a rfadical one, with most big banks not heavily involved in tokenisation and tending to avoid exposure to open-access blockchains and the cryptocurrencies that run on them.

Banco Santander is more than 160 years old and has 166 million customers. The private bank caters to 210,000 wealthy clients, with assets and deposits accounting for about US$315 billion.

“The Swiss regulation related to digital assets is one of the first and most advanced in the world, since it provides clarity and a comprehensive regulatory environment for our clients,” said John Whelan, head of crypto and digital assets at Santander, in an email. “As holding of crypto as an alternative asset class continues to expand, we expect that our clients prefer to rely on their existing financial institutions to be responsible for their assets.”


HKMA updates margin financing guidance ahead of FINI launch

The Hong Kong Monetary Authority (HKMA) has updated its rules for credit risk management of share margin financing two years after the previous revision, ahead of tomorrow’s launch of the Fast Interface for New Issuance (FINI) platform.

The launch heralds Hong Kong’s transition to a T+2 settlement cycle for all new listings, said the Authority.

“The cutover and migration of electronic initial public offering (EIPO) functions from Central Clearing And Settlement System (CCASS) to FINI will become effective after the close of business on 21 November 2023,” the HKMA stated. “All new listings with a listing document issuance date on or after 22 November 2023 will be processed on FINI and the first permissible listing date will be 5 December 2023. New listings with a listing document issuance date on or before 21 November 2023 will be allowed to complete their processing on CCASS using the existing operational arrangements.”

The Authority’s Supervisory Policy Manual (SPM) module provides further guidance on a "holistic approach to risk management” of share margin financing.

The HKMA previously updated the SPM module CR-S-4 in October 2021, to remove a requirement for banks to “observe market norms" when setting the maximum loan-to-value (LTV) ratios for share collateral in margin financing. The change was to account for the fact that share collateral portfolios often comprise shares from different markets.


Taulia and Mastercard partner on virtual card B2B payments

Taulia, a fintech specialising in working capital management solutions, has partnered with Mastercard to launch Taulia Virtual Cards.

According to a release, the new solution provides businesses with additional working capital management advantages, including the ability to maximize cash flow and minimize payment uncertainty. “Following Taulia Virtual Cards’ seamless integration across SAP ERP solutions, including SAP S/4HANA and other major enterprise resource planning (ERP) platforms, corporates can streamline previously cumbersome payment-related tasks more effectively and affordably,” the release stated

Initially, two major banks - Degussa Bank and HSBC - are set to participate. Taulia customers will benefit through their existing issuer relationships, meaning customers can deploy virtual cards and extend the current benefits offered by their own banks through Taulia, while also enjoying the speed, controls, and efficiency of virtual card payments. This “bring your own bank” capability is made possible by Taulia’s integration with Mastercard’s innovative virtual card platform, which is connected with more than 80 banks globally.

This partnership will allow Taulia to expand its working capital solutions for businesses by leveraging virtual cards generated through Mastercard upon request, providing significant time and cost savings to corporates seeking more consumer-grade user experiences in their enterprise platforms.

Through the tightly integrated virtual card experience, businesses benefit from greater spend control and more options to pay suppliers efficiently. On the other end, suppliers gain improved cash flow and enhanced visibility, alleviating friction across B2B transactions.

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