The US and China concluded the second Strategic Economic Dialogue (SED) meeting on 23 May and achieved a number of market access agreements covering the air services and financial services sectors. In the financial sector, China agreed to raise the Qualified Foreign Institutional Investors (QFII) scheme to $30 billion from the existing $10 billion, to immediately allow foreign-invested banks to offer their own brand of RMB-denominated credit and debit cards and to allow new foreign securities firms to operate. China also maintained its initiative to widen its RMB trading band. Analysts suggest that the meeting has been moderately successful, allowing tensions to cool off in the short term, but with the 2008 Presidential elections China is due to become a very hot political topic.
A senior lawmaker in Venezuela stated that the country’s proposed withdrawal from the IMF and WB was on hold until its potential impact on the country’s sovereign debt was fully considered. This suggests that the government wants to prevent a technical default on its external tradable debt, which stands around $21 billion. This may give current bond-holders some short term comfort, but fears over a default in the medium term is likely to cap further material gains until there is a substantive commitment from the authorities on if and when withdrawal will happen.
Finance Minister Zuluaga of Columbia announced controls on its inward portfolio investment. 40% of foreign portfolio inflows will have to be deposited at the central bank in a non-remunerated account for six months, or investors face a fee of 9.4% of the capital inflow. Capital inflows that remain for a longer period of time are subject to lower fees, but full details were not available on Wednesday. These measures are clearly designed to discourage short-term portfolio inflows and slow the appreciation of the peso. Analysts believe such measures may discourage foreign investors to participate in the domestic stock market and the TES bonds, leading to some price volatility in the short term.
Peru’s government was given approval by the Paris Club to prepay up to $2.5 billion of its bilateral debt. The government plans to finance this through sol-denominated, long-dated external and domestic bonds, which is likely to be issued before the Paris Club transaction in October. Analysts maintain this is a positive development; removing foreign currency risk and helping to develop the local capital market.
Prime Minister Erdogan of Turkey endorsed a plan for a military operation against Kurdish fighters in northern Iraq. But approval for such an offensive by the US administration is highly doubtful.