Week in Review

July 2, 2018

Global Roundup

Mexico election: The candidates, the stakes and the key issues. Voters will choose their next president July 1 at a time of disillusionment about unchecked corruption, poverty and violence. (Guardian)

Britain is underestimating true size of EU divorce bill, say MPs. The British government’s estimate of how much it will have to pay the European Union as part of its divorce settlement is at least 10 billion pounds too low, a committee of MPs said on June 27. (HSN)

How to read Turkey’s election results. The election in Turkey on June 24 was a victory for strongman Recep Tayyip Erdoğan. To truly sustain his victory, he will need to tone down his populistic rhetoric and cooperate with a parliament that is now much more diverse. (Brookings)

Cuba’s incoming constitution unlikely to see new market reforms. The latest push to rewrite Cuba’s four-decade-old constitution is another momentous opportunity for change, but it is unlikely to bring desperately need political and economic reforms expected for the island. (Global Risk Insights)

AIIS launches constitutional challenge to Trump’s tariffs. The American Institute for International Steel (AIIS) is about to file a lawsuit which will challenge President Donald Trump’s constitutional authority to impose Section 232 tariffs on imported steel. (Global Trade Magazine)

What happens to Merkel after crunch EU summit? Chancellor Angela Merkel is now under intense pressure to get her EU partners to agree to migrant policies to ease the burden on Germany and prevent her Bavarian conservative allies from introducing new national border controls. (Reuters)

How a rising U.S. dollar puts Argentina's and Brazil's economies at risk. The strengthening U.S. dollar is causing capital flight in emerging markets such as Argentina and Brazil. For the past month, the Argentine peso and the Brazilian real have been among the world's worst-performing currencies against the dollar. (Stratfor)

The DRC’s uncertain election. Political tensions are increasing in the Democratic Republic of Congo (DRC) as concerns over a December election spread among the political opposition and the international community. (Global Risk Insights)

Russia's unpredictable past is complicating economy's future. Russia is a country with an unpredictable past, according to a local saying, and a recent change in some of its economic data rather proves it. (Business Times)

Trade war shows signs of impact in U.S. exports, durables data. Some economists are detecting signs in data that trade tensions are having an impact on American companies. (HSN)

Trump’s trade war pushes China closer to old foe India. India and China, longstanding economic and strategic rivals, are seeing a thaw in relations less than a year after the most serious border flare-up since a war in 1962 threatened ties between the two Asian giants. (Business Mirror)

EU likely to impose safeguard measures on steel imports by mid-July. As the trade war with the U.S. escalates, the EU is considering imposing provisional safeguard measures on steel imports, Trade Commissioner Cecilia Malmström told the press on June 26. (EurActiv)

China Beige Book says economy is better than official data show. The picture of China’s economy slowing in the second quarter is misleading, or even inaccurate, with retail sales and investment actually stronger than the official data show, according to the China Beige Book. (HSN)

What’s the deal with ZTE? While the new ZTE deal could absolutely ease bilateral tensions and prevent a global economic crisis, it has more successfully revealed Trump’s malleability, the growing rift within the U.S. government, and ignored larger security threats. The U.S. may have found China’s weak spot in ZTE, but in the process it exposed its own more vital vulnerabilities. (Global Risk Insights)

Bitcoin bloodbath nears dot-com levels as many tokens go to zero. Bitcoin’s meteoric rise last year had many observers calling it one of the biggest speculative manias in history. The cryptocurrency’s 2018 crash may help cement its place in the bubble record books. (Bloomberg)

Asia has “broadly regressed” on trade sustainability. Asian countries have “broadly regressed” on trade sustainability, with economic progress being offset by declines in social and environmental standards, researchers find. (Global Trade Review)


Election Calendar

South Sudan, President, Council of States, July 9 (tentative)

Pakistan, National Assembly, July 25

Cambodia, National Assembly, July 29

Mali, President, July 29

Zimbabwe, National Assembly, President, Senate, July 30

Rwanda, Chamber of Deputies, Sept. 2

Sweden, Parliament, Sept. 9

Unlikely Hero for Merkel

Chris Kuehl, Ph.D.

If one had offered the opinion a few years ago that Germany’s Chancellor Angela Merkel would be rescued from a dire political crisis by Greek Prime Minister Alexis Tsipras, one would have been laughed out of the room. It was Merkel who fought so hard against the efforts of Tsipras and the SYRIZA Party in Greece as they tried to wiggle out of the monstrous debt crisis engulfing Greece.

The Germans were making it abundantly clear they considered the crisis a creature of Greece’s making—years of profligate spending financed by wave after wave of debt. Now that Greece was falling apart, the Germans and the EU were supposed to ride to the rescue. It was as if Greece was the irresponsible teenager that lands in jail and calls Mommy and Daddy to bail him out. There was real enmity between Merkel and Tsipras. How things change in the world of politics!

Merkel is now facing her most serious political crisis. It stems from the immigration issue that she has been unable to resolve or distance herself from. Her ruling coalition is on the verge of total collapse because the Bavarian Christian Union is furious with the policy she put in place. There has been an astounding array of miscues and bad assumptions since the crisis began. Merkel has been trapped by them all. It is hard to even understand the original idea even though it was only brought forward a few years ago.

At the time that Merkel opened the German door to refugees from Syria, there were three key assumptions that have since proved inaccurate. The first was that the civil war in Syria would end relatively quickly and that Bashar al-Assad would be removed from power. The Syrians would not be staying very long in Germany because most of them would simply go home to rebuild their nation. Today, Assad is stronger than ever, and there will be no returning for the vast majority of those who fled.

The second assumption was there would be a limited number of refugees arriving from an essentially middle-class society. Instead, the whole of North Africa and the Middle East as well as South Asia seemed suddenly determined to come to Germany. Most of these migrants wanted to stay and were fleeing poverty and deprivation as opposed to war.

The third assumption was that the Germans would embrace the role of humanitarian, and all of the EU would band together to help the Germans with this effort. German patience wore thin very quickly, and the rest of Europe wanted nothing to do with this.

To make matters worse, the exodus of refugees and migrants quickly became overwhelming. The brunt of the impact was felt by the poor states of Southern Europe. The fleets of rickety boats landed in Greece, Italy and Spain, while the overland treks took people into the less-than-welcoming states of Eastern Europe. These counties alternately tried to get these refugees to stay home or they tried to expedite their move to Germany. This became the crisis for Merkel. The numbers are in the tens of thousands now. The Germans want them to leave, but those southern states have adamantly refused to take them back. Italy, in particular, has become bitterly hard line on this issue under the new populist leadership of the Northern Alliance and the Five Star Movement.

Suddenly, there is Tsipras from Greece agreeing to take thousands of these refugees and migrants back to Greece for further processing. Some of them may eventually be allowed to stay, but many others will be deported. In the meantime, the Greeks will have to find some way to pay for all this. That is likely what Tsipras got from Merkel—along with some degree of flexibility on how Greece will be expected to deal with its longer-term debt issues.

Altman Z-Score Nearing Golden Anniversary

After nearly 50 years in existence, the Altman Z-score remains one of the leading indicators of whether a company is experiencing financial stress and whether it will go into bankruptcy within the next two years.

Bankruptcy guru Edward Altman, Ph.D., professor of finance, emeritus, at New York University’s Stern School of Business, credits three reasons for its longevity:

  • It is simple and easily replicable;
  • It is still accurate; and
  • It is free.

The Z-score model was published in 1968 and was the forerunner of many studies for predicting corporate bankruptcy. Altman never anticipated that the model would last longer than a year when he first began formulating it in the late 1960s. He says that he was simply “in the right place, at the right time.” The ability to create the Z-score would not have been possible two years prior; and two years later, someone else would have thought it up, he explains.

Although the original Z-score model has undergone some changes and updates for various industry sectors, at its core, it remains the same. Credit professionals can easily access the model; all it takes is a quick internet search. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company.

Investopedia defines the Altman Z-score in the following way:

The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy. The Altman Z-score is based on five financial ratios that can be calculated from data found on a company's annual 10K report. It uses profitability, leverage, liquidity, solvency and activity to predict whether a company has a high degree of probability of being insolvent.

Altman recently spoke to a group of credit professionals who participated in the National Association of Credit Management’s Graduate School of Credit and Financial Management (GSCFM) about how they can use it as tool to assist them with credit decisions about potential customers. When deciding whether to extend credit, why not consider the probability of default, Altman challenged them.

A past graduate of the GSCFM program, Sandi Langdon, CCE, ICCE, head of credit management North America for Clariant Corporation (Charlotte, NC), could not agree more. “At my company, we extensively use the CreditRiskMonitor’s FRISK score in our day-to-day credit assessments,” Langdon said. “CRMZ’s Frisk score has proven to be 96% accurate and one of its components is the ratios used in the Altman-Z score.” 

After all this time, “the Z-score is amazing for being so accurate,” said William Danner, president of CreditRiskMonitor.

The Altman-Z score is a classic in the credit management profession, Langdon added. “It remains useful despite being over 50 years old in predicting bankruptcy for certain types of companies. No measure should be used in isolation, but this one remains an important tool in every credit manager’s toolbox.”

Langdon further pointed out that “a bad Altman-Z score prompts you to delve further into the company and find out why. Ed Altman is the one person that credit managers look up to as the rock star of our profession!  Don’t ever miss the chance to hear him speak.”

NACM and FCIB members and nonmembers will have an opportunity to hear for themselves about the usefulness of the Z-score when assessing risk. On Nov. 27, at 10 a.m. ET, Altman will present the webinar, Credit Risk Models and Solutions.

Morales Cleared for Reelection Bid

The PRS Group

The political temperature has risen since November, when the Constitutional Court ruled that the term limit on the presidency violated the “human right” of Bolivians to elect leaders of their own choosing, thereby clearing the way for Evo Morales to seek reelection next year. The court decision ignored the fact that a majority of Bolivians had rejected a proposal to lift the term limit at a national referendum held in early 2016, and Morales’ claim of strong popular demand for him to run for a fourth term was again called into question when a majority of voters submitted protest ballots at judicial elections held just five days after the controversial court ruling.

One recent opinion poll found that only 22% of respondents would support Morales’ bid for a fourth term in 2019. While the mainstream political figures forming the pool of prospective opposition presidential candidates is not a very inspiring bunch, Morales has no choice but to assume that his hopes of winning a fourth term hinge on rebuilding his eroded electoral base. The manner in which he goes about pursuing that objective has potentially significant implications for investors.

On the one hand, the president might decide that the path to success is attracting foreign investment into potentially lucrative industries, such as lithium mining, with the goal of reinvigorating an economy that recorded a fourth consecutive year of decelerating expansion in 2017. On the other hand, there is a danger that Morales will instead—or perhaps even simultaneously—grasp for short-term political gain by resorting to populist and nationalist gestures that create problems for foreign firms.

The government’s recent moves to open lithium mining to foreign participation is a clear acknowledgment of Bolivia’s dependence on outside partners. After nearly a decade of failing to develop the economic potential of what are estimated to be the largest lithium reserves in the world (and roughly 25% of the global total), state-owned YBL announced in late April that it had chosen Germany’s ACI Systems as a strategic partner in a project to produce and market lithium-ion batteries.

The deal with ACI is a potentially significant development, but there has been no shortage of foreign interest in Bolivia’s lithium reserves, and the failure to translate that into production is almost entirely down to political impediments. Morales has a strong incentive to eliminate those obstacles but will not hesitate to tighten state control if the opening to foreign investors leaves him vulnerable to charges of failing to uphold his pledge to guarantee Bolivia’s ownership of its natural resources.

The analysis above is taken from the May 2018 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.

FCIB’s July International Credit & Collections Survey is assessing payment behavior in the following South American countries: Argentina, Colombia, Brazil, and Chile. The monthly FCIB International & Credit Survey is open to all credit and risk management professionals who can share their real-time business experiences, and both members and nonmembers will receive the results of the survey in which they participate. Members, however, have full access to reviewing historical benchmarks in the survey archives.

NACM Rolls Out New, Free Business Credit App

The new Business Credit app is now live, following its official rollout during the 122nd annual General Session at Credit Congress in Phoenix in June. The app is designed for convenience and gives readers easier access to NACM and FCIB content.

“First and foremost, the app version of Business Credit magazine puts the information at my fingertips; it’s simply more accessible,” said Jay Snyder, CCE, ICCE, NACM-National Board of Directors immediate past chair. But, it’s not just the magazine articles that have made their way into the electronic universe. NACM’s weekly newsletter (eNews), FCIB’s Week in Review, blogs and the daily Strategic Global Intelligence Briefs by NACM Economist Chris Kuehl, Ph.D., are also available for reading on mobile phones and tablets.

Download the free app to stay up to date and informed on commercial credit topics. “I spend a lot of time on the road, in airports, etc. The app gives me the flexibility to read and catch up on industry news at my convenience,” said Kenny Wine, CCE, NACM-National chairman of the board. “I think I will be able to read more of the magazine quicker now, because typically, I leave it on my desk and forget to take it with me on some of my trips out of town.

“I can read the magazine and scroll back several issues if I want to reread something,” Wine added.

The app is available for Android users through Google Play and in the App Store for Apple products. FCIB is always looking for content ideas and other feedback, so please share your comments via This email address is being protected from spambots. You need JavaScript enabled to view it..

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations