China: Central bank declares all cryptocurrency transactions 'illegal.' The People's Bank of China moved to bar all cryptocurrency transactions Friday. Overseas exchanges providing cryptocurrency services to mainland China will be considered illegal. (DW)

UK's Johnson concedes US trade deal not in the offing. British Prime Minister Boris Johnson has conceded that a post-Brexit trade deal with the U.S. is not imminent as he voiced confidence that the decades-long U.S. ban on the import of British lamb would be lifted. (US News & World Report)

Freight costs keep surging despite shipping giants freezing prices. Shipping costs are continuing to rise despite some carriers suspending rate increases and investigations by competition regulators, with the price for ocean freight on popular routes up by more than 500% in the last year. (Global Trade Review)

EU warns of deep divisions at WTO, urges reform. The EU pressed the US Administration to agree on the reform of the World Trade Organization’s dispute settlement system amid deep divisions running through the institution. (EurActiv)

Aukus deal spells trade troubles. The fallout from the surprise announcement of a new security pact between the US, UK and Australia has spilled over into trade. (Global Trade Review)

Japanese politics heats up: The contest for the next LDP leader. Japan’s Liberal Democratic Party (LDP), the country’s dominant political party, is set for a leadership election on 29th September. The outcome of the election will be significant as the winner will become Japan’s new Prime Minister and head the party in Japan’s general election, scheduled for late November this year. (Global Risk Insights)

Taiwan flags China 'risk' to Pacific Trade Pact bid. There is a "risk" to Taiwan's application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) if China joins first, Taiwan's government said on Thursday, flagging a potential political roadblock. (US News & World Report)

Moon pushes peace, reconciliation with North Korea after missile tests. Never once mentioning missiles, South Korean President Moon Jae-in again pushed for peace and reconciliation with North Korea at the United Nations on Tuesday, a week after recent missile testing on both ends of the peninsula renewed tensions between the two rivals. (Business Mirror)

Libor law will help reduce disruption for US structured finance. Proposed federal legislation is expected to minimize disruption risk related to the transition away from Libor for a substantial portion of the floating-rate US structured finance (SF) market if enacted into law. (Fitch)

Evergrande has missed some of its key bond payments. Now what? By midnight US eastern time on Sep. 23, Evergrande, the debt-ridden Chinese real estate giant, was scheduled to have paid $83.5 million to investors overseas. By the following morning, at least some of these investors had not been paid—a critical milestone that renewed fears of Evergrande’s complete collapse. (Quartz)

China moves to join the CPTPP, but don’t expect a fast pass. On September 16, China formally submitted a request to accede to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade agreement. This was not surprising news, but it was still big news. (Brookings)

Iran says nuclear talks to resume 'very soon,' gives no date. Iran will return to negotiations on resuming compliance with the 2015 Iran nuclear deal "very soon," Iranian Foreign Minister Hossein Amirabdollahian told reporters on Friday. (Reuters)

Tensions grow as US, allies deepen Indo-Pacific involvement. With increasingly strong talk in support of Taiwan, a new deal to supply Australia with nuclear submarines, and the launch of a European strategy for greater engagement in the Indo-Pacific, the U.S. and its allies are becoming more assertive in their approach toward a rising China. (AP News)

Congress takes aim at traffickers by blocking imports. Congress stands poised to dramatically change a key legal tool in the fight against human trafficking. Although the name of the law itself focuses on the Uyghur community who are forced to work in Xinjiang, China, it could have global implications. (The Hill)

Each month, FCIB’s Credit and Collections Survey asks credit professionals to give their take on international business transactions in four countries. A large portion of credit professional respondents (45%) noted that payment trends, while doing business in France, remained about the same from July to August. However, a portion of surveyors (36%) reported that delays are increasing compared to past experience. Only 18% state they are experiencing no payment delays at all.

Credit professionals gave a variety of answers as to why these payment delays are occurring with many receiving a similar amount of votes (approximately 18%). The top four reasons include:

• Customer payment policies (i.e., customer only pays on a set day of the month)
• Unwillingness to pay
• Cash flow issues
• Disputes from the customer

Reasons that were less common, but still impacting the duration of these delays include ongoing COVID issues and companies’ shutting down during the month of August due to the holiday season in Europe, according to survey takers.

Before doing business in France, respondents recommend learning French or at least being well-versed enough to maintain open communication. “Otherwise, you may have trouble resolving disputes,” one credit professional said.

In addition to learning a new language, creditors also advise “doing your due diligence” when assessing French customers financially. This involves implementing a proven “know your customer (KYC)” process as well as retrieving financial statements from the customer.

“Check the company carefully and the purchase order you receive,” another credit professional said. “Ensure you have the contact’s name and email correct before invoicing.” Other recommendations from surveyors include issuing prepaid payment terms or using credit insurance to mitigate risks.

By logging into the Knowledge Center, FCIB members can have full access to the complete results of FCIB’s International Credit & Collections Surveys.

 

 

Argentina will hold elections for 127 seats in the 257-member Chamber of Deputies and one-third of the seats in the 72-member Senate on November 14. Recent polling data points to increasingly negative perceptions of both President Alberto Fernández and Vice President Cristina Fernández de Kirchner (no relation). This suggests that candidates from the governing party Everybody’s Front face an uphill battle to claim a majority in the lower house and retain their majority status in the Senate. 

Anxious investors are concerned that a strengthened Everybody’s Front would enjoy freer rein to pursue the unorthodox policies preferred by the vice president. They will be watching closely to see the results of the simultaneous open and mandatory primaries (PASO) scheduled for September 12. Established in 2009, the PASO are viewed as more reliable gauges of pre-election voter sentiment than polls. A strong showing for Together for Change in the primary vote would bode very poorly for President Fernández and his allies, as current circumstances make it very likely that any developments between the PASO and the November elections that produce a shift in voter support will hurt rather than help candidates from Everybody’s Front. 

For now, the two largest political blocs are displaying unexpected unity. However, a drubbing for Everybody’s Front at the mid-term elections would have negative implications for Fernández’s chances of winning a second term in 2023 and would likewise impede the vice president’s ability to pressure Fernandez to implement a populist policy agenda in the interim. It is debatable whether their political marriage of convenience would withstand the strain. 

Improved implementation of a COVID-19 vaccination program has raised hopes for a robust economic rebound this year. However, sustaining even moderate growth beyond 2021 will require the successful conclusion of an EFF arrangement with the IMF that includes a multiyear delay in the repayment of some $45 billion of emergency loans. 

Significant losses for the Kirchnerists in the lower house later this year would leave the president with little choice but to tack to the center if he hopes to accomplish much of anything during the final two years of his term – a strategic shift that would presumably encourage him to be flexible about the terms of an agreement with the IMF. In contrast, a better-than-expected performance by the vice president’s leftist allies would no doubt embolden her to demand that the government adopt a combative posture toward the IMF – a scenario that would probably result in the resignation of Fernandez’s technocrat finance minister, Martin Guzmán, and a collapse of investor confidence.

The analysis above is taken from the August 2021 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.

As the world’s biggest copper producer, Chile’s shipments of the metal meet around one-third of global demand and represent about half its goods exports.

But beyond mining’s dominance, Chile’s trade flows are more varied and complex than they may appear, with significant exports of vehicles, pharmaceuticals and telecommunications equipment. And according to a recent IMF staff paper, the Andean economy is among those that shine as a role model for diversification policies.

By looking beyond commodities, the research shows that economy-wide policies such as governance and education help foster diverse exports more than narrowly targeted industrial policies – a finding that can better guide nations aiming to expand their international trade.

The examination of 201 countries and territories goes beyond the economic complexity indices that have traditionally been used by economists. Those proxies for the productive capability of a given economic system have strong sensitivity to commodities that can potentially distort their accuracy.

For a more nuanced read, staff research proposes new ways to gauge diversity and complexity of national exports and suggests how economy-wide policies can foster such variety. Economists call these horizontal policies because they apply broadly across a country instead of targeting single sectors. The approach also takes stock of an economy’s geographic proximity to trade partners, and how it affects exports excluding commodities like metals or oil. 

This lens offers policymakers lessons for how they can better support more multifaceted trade, a common objective in emerging and developing economies because it’s associated with less volatile economic output and faster long-term expansion.

Four key factors

The methodology shows a clear a link between the non-commodity exports that aid diversification and complexity and four economy-wide variables that help support them: governance, education, infrastructure, and open trade. Improving those areas helps to diversify by creating conditions that make it possible to boost complex or higher-value-added exports.

This is significant because demonstrating how economy-wide policies effects diversification challenges the belief that industrial policies meant to support specific industries offer the best way to broaden trade.

The analysis shows that, except for abundant copper reserves, Chile’s economic profile, surprisingly, resembles Malaysia’s. The Asian nation has similarly strong education and institutions, but it benefits from being much closer to the major global supply-chain hubs of China, Japan and Korea.

Prominent Asian and European exporters, from Hong Kong and Singapore to Ireland and Denmark, have among the most diverse and complex shipments and the strongest horizontal policies.

Good policies can make a big difference

For governments aspiring to more varied trade flows, the new approach to explaining diversification underscores the need to effectively shorten geographic distance by enhancing connectivity between nations. Better transportation logistics, at seaports for example, effectively shorten distance by reducing transit times for goods. Other helpful policies include easing trade policy barriers, enhancing trade facilitation, fostering the spread of technology through educational exchange programs, and investing in communication technologies such as broadband that support the digital economy.

Strengthening horizontal policies may seem challenging – especially for countries with lower income. However, several countries have much stronger policies than expected for their income levels, including Rwanda for governance; Georgia and Ukraine for educational attainment; Malaysia for infrastructure; and Mauritius and Peru for tariffs. These economies can be role models.

To be sure, that doesn’t deny the potential effectiveness of more targeted support for individual sectors. Industrial policy levers, though, may be less effective or even harmful. Potential drawbacks include diminished fiscal capacity, a race to the bottom in taxation, and eroded multilateralism. Furthermore, there is no cross-country statistical evidence of their effectiveness.

Instead, diversification strategies built around broader policies and connectivity are both less controversial and more supportive of export diversification and complexity.

Reprinted with permission by the IMF.

 

 

Week in Review Editorial Team:

Diana Mota, editor in chief, and David Anderson, member relations