Victory for Putin, defeat for Chavez, Argentina seeks Paris Club deal without IMF, and UAE would only revalue currency with GCC
Despite soaring food prices in recent weeks, Vladimir Putin’s United Russia party has won a sweeping victory in Russia’s parliamentary elections. With 98% of the votes counted, United Russia claimed 64% of the vote – just short of the two-thirds majority needed to pass constitutional amendments – while its nearest rival, the Communist Party, was left stranded on 12%, according to the Central Elections Commission. Former chess champion and leader of the Other Russia party, Garry Kasparov, called the election a “farce” and reports from within Russia say many people were pressured into voting for the ruling party The US government has called for an investigation into the election. If the result leads to political continuity, analysts believe this will be healthy for investor confidence in the short term. But uncertainty remains regarding the candidate to replace Putin as president, and the relationship the next president will have with Putin. (For more on investor concerns over Putin's future role, please click here).
Venezuelan president Hugo Chavez has suffered a narrow defeat in a referendum that proposed to extend the powers of his socialist government and allow him to run for re-election indefinitely. Opposition supporters celebrated their 51% to 49% victory, which means that Chavez will have to step down in 2012. It is the first major defeat in the former military leader’s nine-year tenure, which was interrupted by a brief failed coup in 2002. The result underlines growing unrest in the oil-rich country at the rising food shortages and stalling rate of investment in basic infrastructure. Economists fear Chavez may adopt a more nationalist tone to reinforce his position, for example by strengthening his opposition to foreign investment – several foreign oil companies have already had their production fields expropriated. (For a recent interview with a leading Chavez advisor on the referendum and on economic prospects, please click here).
Argentina is willing to restructure its $6.3 billion debt to the Paris Club – but only if it is not forced to forge a deal with the IMF. This would be a departure from the usual practice of the informal official creditors’ group, which generally requires indebted countries to sign up to IMF programmes in return for restructuring their payments, to ensure that the savings from debt relief are used appropriately. But President-elect Cristina Fernandez is heavily opposed to any external influence on the country’s economic policy. One option would be for Argentina to use its foreign exchange reserves to repay the debt in full, as this would not require an agreement with the IMF.
The United Arab Emirates will only consider revaluing its fixed exchange rate if its Gulf neighbours agree, the country’s central bank said today after a meeting of Gulf Cooperation Council (GCC) finance ministers in Qatar. The announcement by UAE confirmed that the subject had not been discussed at the GCC meeting. Speculators have been selling the dirham in the forward exchange rate market at stronger than its pegged rate after the central bank suggested last month it would consider pegging the currency to a basket of other currencies. Calls from other Opec members to stop pricing oil in dollars and double digit inflation in the UAE has put pressure on the central bank to reconsider its 30-year attachment to the dollar. The peg forces GCC central banks to shadow US Federal Reserve interest rate decisions and another cut, widely expected later this month, would cause further inflationary pressure.