Argentina secured a $50 billion stand-by arrangement from the International Monetary Fund to help restore investor confidence as the government takes aim at double-digit inflation and a widening budget deficit.
The rescue programme’s size, which would run for 36 months, is the largest ever in IMF history though it will depend on how much the government taps. It comes amid an emerging market sell-off that has shaken developing economies around the world including Brazil, Turkey, Indonesia and Mexico and has forced central banks to hike interest rates.
Officials are worried about the risk of contagion amid rising US interest rates and a strong dollar. With the Federal Reserve tipped to raise rates when it meets next week, central bank governors of India and Indonesia this week called on the Fed to be mindful of its actions.
Of the economies that have been hit hardest, Argentina tops the list. It has indicated it plans to draw on the first tranche of the programme, after which it will treat the loan as precautionary, the government said in a statement.
"The amount we received is 11 times Argentina’s quota, which reflects the international community´s support of Argentina," treasury minister Nicolas Dujovne said in Buenos Aires. “It’s very good news that the integration with the world allows us to receive this support."
Argentina may see 30 per cent of the funds a day or two after the Fund’s June 20 board meeting.
As part of the agreement, the country will now target a fiscal deficit of 1.3 per cent of gross domestic product in 2019 and 2.7 per cent this year. The previous targets were 2.2 percent and 3.2 percent, respectively. A new inflation target of 17 percent is set for 2019.
“This is a plan owned and designed by the Argentine government, one aimed at strengthening the economy for the benefit of all Argentines,” IMF Managing Director Christine Lagarde says in the statement.
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Argentina’s government was forced into the talks with the Fund last month after three central bank rate hikes pushed borrowing costs above 40 percent, but failed to halt a plunge in the currency. The peso fell 25 percent against the dollar this year to trade at 24.9850 on Thursday.
President Mauricio Macri initiated talks with the IMF on May 8 -- a decision that could cost Macri crucial votes in next year’s presidential election. The Fund is unpopular in Argentina and blamed by many citizens for the nation’s historic debt default in 2001 and the ensuing economic crisis.
Central Bank President Federico Sturzenegger said the bank will still intervene in currency markets in times of “disruptive movement." The central bank will not target inflation this year, he said. The government has agreed to send a bill that gives the central bank more autonomy, though details on the timing were scant.
The economy may expand 0.4 percent to 1.4 percent this year, the Treasury minister said.
"We’re convinced that we’re on the right track, that we managed to avoid a crisis, gather support for the program we already had and that has been in place since Dec. 2015, which looks to build a normal economy, reduce poverty and protect the vulnerable," Dujovne said.
Anghami
Started: December 2011
Co-founders: Elie Habib, Eddy Maroun
Based: Beirut and Dubai
Sector: Entertainment
Size: 85 employees
Stage: Series C
Investors: MEVP, du, Mobily, MBC, Samena Capital
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The Penguin
Starring: Colin Farrell, Cristin Milioti, Rhenzy Feliz
Creator: Lauren LeFranc
Rating: 4/5
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
