Israel's Benjamin Netanyahu comfortably wins party leadership challenge. Israeli Prime Minister Benjamin Netanyahu has claimed a "huge win" in a vote that challenged his leadership of the Likud party. (BBC)

Swift opens KYC registry to corporate users. Payments network Swift has opened its KYC registry to corporates, allowing them to manage and share KYC data with their banking partners. (Global Trade Review)

Hundreds in Istanbul sign petitions against Erdogan's canal project. Hundreds of people in Istanbul have signed petitions in the past two days (Dec. 26, 27) opposing a massive canal project championed by Turkish President Tayyip Erdogan, which they say will wreak environmental havoc in the city. (Reuters)

Japan OKs divisive plan to send naval troops to Mideast. Japan on Dec. 27 approved a contentious plan to send its naval troops to the Middle East to ensure the safety of Japanese ships transporting oil to the energy-poor country that heavily depends on imports from the region. (AP News)

China, Russia and Iran hold joint naval drills in Gulf of Oman. China, Russia and Iran began a four-day joint military exercise in the Indian Ocean and Gulf of Oman on Dec. 27 amid ongoing friction in the economically important region between Tehran and Washington. (CNN)

A rocky year for U.S. diplomacy. Whether it was confrontations with Iran and China or the never-ending Ukraine imbroglio, 2019 was a tumultuous year for American foreign policy. (Foreign Policy)

Destruction from 15 natural disasters cost $1bn each. At least 15 natural disasters linked to climate change this year caused damage of over $1bn and seven of them cost at least $10bn, U.K. charity Christian Aid said on Dec. 27. (Business Day)

Brexit talks: EU chief questions feasibility of Johnson's time limit. Prime Minister Boris Johnson should reconsider his refusal to extend the 11-month timeframe available for agreeing a deal on the U.K.’s future relationship with the EU after Brexit, Ursula von der Leyen has suggested. (The Guardian)

Protests continue in India against new citizenship law. More than a thousand students, artists and writers protested in India’s capital and northeastern Assam state on Dec. 25 against a new citizenship law introduced by the Hindu nationalist-led government that excludes Muslims. (AP News)

Cargo ship collides into Istanbul coast, closing the Bosphorus strait. A cargo ship collided into the coast of Istanbul on Dec. 27, forcing Turkish officials to temporarily suspend traffic through the Bosphorus strait. (CNN)

IIG trade finance fund caught in alleged Ponzi scheme. International Investment Group (IIG), which specialises in trade finance lending to small- and medium-sized companies in emerging markets, has had its license revoked by the U.S. Securities and Exchange Commission (SEC) following what the regulator calls “a string of frauds.” (Global Trade Review)

Shippers urged to take another look at cargo insurance. A fundamental misconception of risk is causing many shippers of ocean freight to completely overlook the need for cargo insurance of any kind and to cover against a multitude of eventualities. (HSN)

The economic news from Brazil has suddenly started to reverse. For the last several years, the story has been a bleak one with a long and grinding recession that sapped the consumer of confidence. The U.S. may be the most consumer-centric of nations (roughly 80% dependent on that activity), but Brazil is not far off with an economy that relies on domestic consumption for at least two-thirds of GDP.

The policies pursued under previous leaders led to a triple crisis for Brazilians—high rates of unemployment, high rates of inflation and a subsequent loss of optimism regarding the future. Many still point to the twin debacle of the Olympics and the World Cup as triggers for the malaise. The grand gestures fell flat because the country spent 10 to 15 times as much as it made. Taxes were hiked to pay for it, and billions of dollars were diverted. There has also been criticism of the policies that favored government workers and imposed regulations on every aspect of commercial life.

Much has been made of the controversial outbursts from the “Tropical Trump”—President Jair Bolsonaro. His statements and antics have done their share of damage to the country’s reputation, but the economic leadership has been left to Finance Minister Paulo Guedes. His ambitious reform effort has centered on a combination of fiscal rectitude, deregulation, privatization and close cooperation with the central bank.

The government had been spending more and more money each year under the center-left regimes of Inazio “Lula” da Silva and Dilma Rousseff and had been hiking taxes to pay for this. At the same time, the regulatory system had grown exponentially with measures designed to address everything from climate change and indigenous people’s rights to urban poverty and crime.

Not that these issues are not important, but the regulatory environment had become suffocating. The state-run or managed operations became centers for graft and corruption, and productivity slumped. Under Guedes, there have been austerity budgets, a significant reduction in regulation and some major efforts at privatization. The result thus far has been a higher level of employment, higher wages and improved levels of consumer confidence.

This has not been without controversy, however. The budget cuts have fallen on social programs primarily. The deregulation has led to extensive burning of the Amazon, and there have been strenuous objections from the unions and others over new work rules. Productivity is up and that has meant more consumption. As people give credit to Guedes, there is also the fact that Brazil has benefited from global situations. The demand for soybeans has been on the increase as the Chinese raised tariffs on U.S. output, and the Boeing mess has been good news for Embraer in many markets. Even the lurch back to the left in Argentina has been a boon to investment in Brazil.

Debt in emerging and developing economies (EMDEs) climbed to a record US$55 trillion in 2018, marking an eight-year surge that has been the largest, fastest and most broad-based in nearly five decades, according to a new World Bank Group study.

The analysis is contained in Global Waves of Debt, a comprehensive study of the four major episodes of debt accumulation that have occurred in more than 100 countries since 1970. It found that the debt-to-GDP ratio of developing countries has climbed 54 percentage points to 168% since the debt buildup began in 2010. On average, that ratio has risen by about seven percentage points a year—nearly three times as fast it did during the Latin America debt crisis of the 1970s. The increase, moreover, has been exceptionally broad-based—involving government as well as private debt, and observable in virtually all regions across the world.

“The size, speed and breadth of the latest debt wave should concern us all,” said World Bank Group President David Malpass. “It underscores why debt management and transparency need to be top priorities for policymakers—so they can increase growth and investment and ensure that the debt they take on contributes to better development outcomes for the people.”

According to the report, the prevalence of historically low global interest rates mitigates the risk of a crisis for now. But the record of the past 50 years highlights the dangers: Since 1970, about half of the 521 national episodes of rapid debt growth in developing countries has been accompanied by financial crises that significantly weakened per-capita income and investment.

“History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population,” said Ceyla Pazarbasioglu, the World Bank Group’s vice president for equitable growth, guidance and institutions. “Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks.”

The analysis found that this latest wave is different from the previous three in several ways: It involves a simultaneous buildup in both public and private debt; it involves new types of creditors; and it is not limited to one or two regions. Some of the increase in debt has been driven by China, whose debt-to-GDP ratio has risen 72 points to 255% since 2010. But debt is substantially higher in developing countries even if China is excluded from the analysis—among EMDEs, it is twice the nominal level reached in 2007.

Those characteristics pose challenges that policymakers haven’t had to tackle before. For example, nonresident investors today account for 50% of the government debt of EMDEs, considerably more than in 2010. For low-income countries, much of this debt has been on non-concessional terms, and outside the debt-resolution framework of the Paris Club.

Under the circumstances, policymakers should develop mechanisms to facilitate debt resolution when it becomes necessary, according to the report. Greater debt transparency would also help.

The food industry is an extremely volatile market due to a number of factors including trade agreements, the shelf life of products, weather, diseases and other regulations. This can make a credit manager’s job a lot more difficult especially when determining creditworthiness and making credit decisions. Earlier this month, credit insurer Atradius reviewed a dozen countries and their food markets in their latest Market Monitor series. Atradius took a deep dive into half the countries—Denmark, France, Germany, Italy, the Netherlands and the U.K.—while only scratching the surface of Australia, Belgium, Ireland, Mexico, Poland and Spain.

Overall, credit risk assessments tend to average out in the stable rating; however, with a closer look into each country, there are several issues that could affect the food market credit industry. “In general, the food sector continues to perform reasonably well, with a stable or even good sector performance assessment in many countries,” states the credit insurer.

Denmark, Germany and the U.K. have seen a deterioration of nonpayments over the last six months, and Denmark, Germany, the U.K. and Italy are predicted to see more deterioration of nonpayments in the coming six months.

Despite taking 30–60 days for payment and an increase in delays in Denmark, the number of delays is still low. Brexit has had a major impact on the Danish food sector, with the U.K. as one of the top three destinations for food exports.

Meanwhile, France has seen improvement in nonpayments over the last six months and will remain stable going forward. However, insolvencies are predicted to increase in 2020. Again, Brexit is a major issue for exporters as well as U.S. tariffs. According to the latest FCIB International Credit & Collections survey for France, respondents are granting longer payment terms and are reporting increasing payment delays. “Average payment term is 60 days, often [it] is necessary to have active follow ups to get payments,” said one respondent.

In Germany, Atradius reports an increase in fraud, specifically identity theft. Imposters are buying fish, fruits and vegetables to easily resell on credit terms, so the credit insurer is paying “close attention to the number of credit limits that are applied for within a short period, especially where the buyers are recently established and where management and/or shareholders have recently changed or the buyer’s business sector does not match with the goods ordered (e.g., a steel company ordering food items).” Germany is also expected to feel U.S. tariffs, which could impact the sector’s credit risk. Food producers and wholesalers pay within 30 days on average, according to Atradius, which lines up with what was seen in FCIB’s Germany survey where nearly half of respondents reported 0–30-day payment terms.

U.S. tariffs are not expected to have a large impact on Italy due to the low market share, about 10% of exports. Like Germany, credit limits are an important indicator when trying to determine if the application is fraudulent. According to Atradius, payment delays are expected in 2020, which mirrors what was seen in FCIB’s survey—a modest increase in delays; however, average days beyond terms did decrease from the previous survey. “Stick to your payment terms; expect a 15-day grace period,” advised one respondent.

U.S. tariffs on Dutch exports are also predicted to have a limited impact. Yet, one of the top exports, beer, could suffer if the tariffs continue to escalate. Beer and cocoa have not been impacted yet, and the dairy sector could see small losses. Payments, on average, take 45 days in the Netherlands.

Meanwhile, U.S. tariffs on European Union imports are expected to impact Scotland’s second-largest export, whiskey. Larger firms have the potential to disrupt the food supply chain by pushing for longer payment terms. Typically, payments in the U.K. take 45–60 days. According to FCIB’s U.K. survey, 82% of respondents grant terms up to 60 days.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations