Iceland: Crisis Ahead?; Egypt: Inflation Troubles; Japan: Political Standoff; Argentina: Rural Strike
Co-written with other RGE Lead Analysts.
Iceland: Crisis Ahead?
Will Iceland avert financial crisis? Doubts over the health of its highly-leveraged banks came to the fore this week. The fear is that the government will be unable to support the banks if they hit problems. CDS spreads for the banks have surged, and confidence in the local currency (down more than 20% against the euro so far this year) eroded. To prevent a confidence run, the central bank unexpectedly hiked the policy rate to 15% this week. Iceland’s Financial Supervisory Authority says the banks are fundamentally sound, but Thor Herbertsson, co-author of an influential report on Iceland’s economy, said speculation of a crisis is “close to becoming self-fulfilling.” Take a look at: “Iceland’s Banking System: Potential For A Northern Rock-Style Crisis?” and “Iceland’s Emergency Rate Hike: Challenging Time For The Central Bank”
Egypt: Inflation Troubles
Egypt’s inflation is on the rise – reaching 12.1% yoy in February – led by rising energy and food prices. Egypt has gradually been dismantling its extensive subsidy system, to limit the fiscal costs but doing so is unpopular. Most Egyptians have yet to feel the benefits of growth (7% average in recent year). Even professional groups like university professors have been striking to demand higher wages to meet the costs. Check out: “Will Food Inflation Destabilize Egypt?” and “Egypt’s Monetary Policy Framework: The Right Tools to Respond to Inflation?”
Japan: Political Standoff
Are political clashes getting in the way of Japan’s economy? This increasingly seems to be the case. The leaderless Bank of Japan is the latest casualty. So far, the ruling LDP and opposition DPJ have been unable to agree on a replacement for Governor Fukui, whose term expired March 19. The next political battle is centering around an important gas tax set to expire March 31. According to JP Morgan Chase, Japan would lose 2.6 trillion yen ($26 billion) in revenue should the government fail to extend the law. See “Leaderless Bank of Japan: Deputy Governor To Stand In” and “Economic Effects of Japan’s Fractious Political Landscape”
Argentina: Rural Strike
Thousands of protesters filled the streets of Buenos Aires on Tuesday night after the government introduced a new sliding scale of export tariffs and refused to back down after a two-week strike by the farmers. Argentina’s agricultural export taxes have contributed to the sharp rise of world soy prices. Read: “Rural Strike and Tax Hike in Argentina: What’s Going On?”
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