IMF raising volume on call to address anti-globalization anger

IMF chief Christine Lagarde has repeatedly stressed that giving in to protectionism will not help those on the margins and in fact will make matters worse by driving up prices and eroding global growth. (AFP)
Updated 21 April 2017
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IMF raising volume on call to address anti-globalization anger

WASHINGTON: As the global recovery gathers pace, the International Monetary Fund (IMF) is turning up the volume on its call for wealthy countries to address popular anger over the impact of globalization and head off the threat of protectionism.

The renewed push comes as finance ministers from 189 countries gather for the fund’s semi-annual meeting Friday and Saturday, in a tense atmosphere of rising anti-trade rhetoric in many advanced economies.
“This sentiment of populism in the views of many is fueled by the feeling of being excluded or being left out,” IMF chief Christine Lagarde said Thursday night.
“What better than more growth, more equitably shared, in order to respond.”
The IMF for years has been calling for countries to drive toward what it calls more inclusive growth with programs to help those hurt by globalization and trade — but typically it has centered on developing nations.
Now the focus is on advanced economies and the message has taken on greater urgency, amid anti-internationalist sentiment evident in the election of US President Donald Trump, as well as in the bitter French election campaign and last summer’s British vote to leave the EU.
Lagarde has repeatedly stressed that giving in to protectionism will not help those on the margins and in fact will make matters worse by driving up prices and eroding global growth.
But as the IMF raised its forecast for global economic growth to 3.5 percent for this year — a rare upward revision — Lagarde said it is time to address these concerns from “an economic point of view,” to help spread the benefits of growth to marginalized groups while preserving international cooperation.
Raghuram Rajan, former governor of the Reserve Bank of India (RBI), said the legitimate concern in advanced economies “reflects a cry of anger and for help.”
Governments should respond with “broad-based rehabilitation” of communities hurt by lost manufacturing — a situation nearly entirely due to technological advances rather than trade, even though trade is blamed, he said.
“We need to think seriously about rebuilding these communities... to lift up the forgotten man,” Rajan said in a lecture at the IMF entitled “Popular Insurrections,” which Lagarde attended.
“Industrial countries have large areas that need development,” Rajan said. But this “requires (a) certain amount of funding, and new thinking.”
It also may mean returning decision-making on some issues like trade and climate rules back to national governments, rather than leaving them in the hands of multilateral institutions — which have drawn the ire of many US, British and French voters.
The IMF said “hundreds of millions” of people have been lifted out of poverty through economic integration and technological progress, “helping to reduce global income inequality.”
The fund is calling for governments to use “well-targeted initiatives” to help workers adversely affected by free trade and other economic changes to find jobs in new industries.
In addition, they should direct spending toward establishing social safety nets to help with the loss of income, as well as improving education and training, the IMF said.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.