Posts Tagged: government debt


The finance ministry may consider setting the limit for foreign institutional investment in gilt (government debt) in rupees instead of dollars.

A rupee ceiling will not only ensure higher foreign investments in government paper but also boost the Indian currency, which has been steadily depreciating over the past few weeks.

The news sent bonds and the rupee rallying on Friday.

Analysts feel such a step could effectively increase debt limits by $5.8 billion.

India’s current debt limit of $25 billion for government bonds is fully utilised. The country has also set aside another $5 billion for long-term foreign investors such as sovereign wealth funds, pension, insurance funds and central banks. >> Read More


A report from the Hellenic Parliament that says Greece should not pay the Troika

A truth committee was set up to look at whether the debts imposed on Greece were valid and their findings have been released today

“All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika‘s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.”

“Having concluded a preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.”

Athens, June 17, 2015

Hellenic Parliament’s Debt Truth Committee Preliminary Findings – Executive Summary of the report

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With Tsipras’ delegation in Brussels desperate to work out a last minute deal and preserve Greek pension cut “red lines”, not to mention Greece in the Eurozone, it is the IMF which has become the biggest hurdle to getting a deal done because while even the European Commission is ready defer €400 million of cuts in small pensions if Greece reduced military spending by same amount, the IMF promptly scuttled this suggestion according to FAZ.

So as we enter Sunday and what may well be the last possibility to get deal done before the “accidental” Grexit scenario is put in play, we thought our Greek readers would be interested to learn that while Lagarde’s “apolitical” IMF is digging in tooth and nail against giving Greece even the smallest amount of breathing room, the equivalent of half an our of a typical daily Fed POMO notional amount, yesterday the same Lagarde said that the IMF “could lend to Ukraine even if Ukraine determines it cannot service its debt.

This is the same Ukraine whose bonds last week tumbled by 9% after the country’s American finance minister Natalie Jaresko said Ukraine will default on its debt unless creditors (among which both Russia and the US taxpayer via the IMF in addition to various hedge and mutual funds all used to getting a last minute bailout on their terrible investments) acquiesce to their demands for more aid (i.e., more debt).

Lagarde’s statement also indicates that the Hermes and tanning bad connoisseur does not know the difference between a loan and an equity investment, which is what “lending” to an insolvent Ukraine would be equivalent to. >> Read More


Governments that face lower risks of a sovereign debt crisis are needlessly damaging their economies if they impose harsh austerity programmes simply to pay back creditors more quickly, the International Monetary Fund has warned.

In a new staff discussion note published on Tuesday, the IMF has said that countries with fiscal breathing room should let the ratio between debt and gross domestic product decline via higher economic growth. This means avoiding the imposition of distortive taxes or cutting productive spending in order to obtain a budget surplus.

“It does not follow that once the debt is accumulated, it should be paid down to restore growth,” the IMF said. “On the contrary, where countries retain ample fiscal space, the cure would seem to be worse than the disease — the taxation needed to pay down the debt will be more harmful to growth than living with the debt.”

The study comes as politicians in high income countries debate how to reduce the high levels of government debt which have accumulated as a result of the financial crisis. Public debts in advanced economies have risen, on average, from 53 per cent of national output at the end of 2007 to almost 80 per cent at the end of 2012. Governments are having to deal with these debt overhangs, with some planning to run budget surpluses to prevent the debt from rising further.

The British government, for example, is targeting a budget surplus for the end of this parliament which would be partly used to pay back the national debt.

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European leaders and the head of the International Monetary Fund agreed to step up the intensity of talks over Greece’s fate after an extraordinary meeting in Berlin about ways to avert a default.

The top-level huddle lasted past midnight Tuesday morning at Germany’s government headquarters with Chancellor Angela Merkel, IMF chief Christine Lagarde, European Central Bank President Mario Draghi, French President Francois Hollande and European Commission President Jean-Claude Juncker in attendance. The goal was to hammer out an offer that Greece could consider in coming days, according to two people familiar with the plan.

After Merkel left, her office put out a statement saying the five leaders “agreed that work must now be continued with greater intensity” and that “they have been in closest contact in recent days and want to remain so in the coming days, both among themselves and naturally also with the Greek government.”

Efforts to end an impasse over funding have become urgent as the Mediterranean nation faces a debt repayment to the IMF on Friday. While Greece says it can make the payment, it’s the smallest of four totaling almost 1.6 billion euros ($1.78 billion) this month. The timing coincides with the expiration of a euro-region bailout by the end of June.

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India: What Price Hope?

01 June 2015 - 11:27 am

Since the financial crisis of 2008, the US has thrown USD 5 Trillion at the problem-people and corporates who cannot redeem debt. In the process, they have added a mere 1,6 mn jobs in 7 years and partially helped the unemployment number go down. What refuses to go up is the GDP-it stays at zero per cent. What have they achieved elsewhere. A US Government debt of USD 20 Tn, zero interest rates on the short term and 2.10 per cent on 10 years. To get growth going India, China, Japan and EU have put in stimulus of differing magnitudes. 

What have they achieved-a persistent decline in GDP growth. Huge increases in cumulative national debt, record low level interest rates, crucified currencies, rampant unemployment and plunging cömmodities. Emerging World is consistently becoming poor compared to the US and the West as nation’s go down the drain, trying to Export everything to a single market at any price.
Such has been the devastation in EM economies that nation’s like the PRC are pushing everything at any price to all EMs backed by the carrot of Debt swaps and bilateral credit lines. In the process the US and China are surviving but pretty much everything else in between is finished. The GDP numbers that India produced over the weekend are probably fudged as are the inflation figures. How can WPI be negative and CPI be positive by equal amounts. That is a gap of 10 per cent in wholesale and retail inflation. Ideally both indexes should be same and the difference should just be the price at the two levels. But the indexes have been made to camouflage.
A new trick is now being imposed. Get RBI to cut Repo. With so much arm twisting the market may get 25 to 50 bps tomorrow. But the debt buyers will be killed. Look at the Bank balance sheets. CASA deposits carry 7 day deposits at 4 per cent. But bulk deposits that make the Balance Sheet carry 7 day deposits at 7.5 per cent or the Repo rate. If Repo or overnight rate is brought down to 7 per cent, the 10 year GOI will fall to 7.3 per cent yield. How can there be a 30 bps gap between a overnight rate and a 10 year rate. Bulk deposits will move elsewhere impairing Banks, and this money will not go to equity.
The FIIs which have bought Indian Debt over the past 12 months and put in roughly about USD 50-70 Bn can take advantage and move out, crippling the Rupee. Also, with US planning to raise rates, the gap between Indian and US 10 y will reduce. Add currency volatility and money will be withdrawn and not brought into the country.
In the Great War, sage Parasurama tells Karna,äll education achieved by untenable means will lose meaning when needed”. By reneging on the sovereign autonomity granted to RBI, the GOI will not jumpstart but destroy the economy. Let this be known and understood.

- Debt load of many countries is an economic risk
- Ageing populations in developed world to put pressure on economies
- Goldman proposes “creative” social policy to deal with looming crisis
- Entire debt-based monetary system needs reform


The debt burden – particularly in “developed” countries – along with ageing populations pose a risk to the economies of those countries, Goldman Sachs has warned. Andrew Wilson, Goldman Sachs Asset Management’s chief executive in Europe said, “There is too much debt and this represents a risk to economies. Consequently, there is a clear need to generate growth to work that debt off but, as demographics change, new ways of thinking at a policy level are required to do this.” >> Read More

FIIs’ India bond weakens

23 May 2015 - 9:35 am

Foreign institutional investors (FIIs) are selling bonds for the first time since April 2014, having pulled out $1.43 billion so far in May 2015, reports Bhavik Nair in Mumbai. FIIs had sold $1.85 billion in April last year but have since been loading up on debt, especially sovereign securities. In 2015, so far they have pumped in close to $6 billion into the bond market but the selling in May has pressured the currency somewhat; while the rupee was trading at 63.44 to the dollar at the start of the month, it had depreciated to 64.24 by May 7. On Friday, the currency closed at 63.52 to the dollar.

Brijen Puri, MD, head of markets at JPMorgan, says the FII outflows could be due to a combination of factors such as the sell-off in bonds globally, the rise in price of crude oil and uncertainty on rate cuts by the RBI.

Foreign bankers say the investment cycle not kicking off is something that FIIs seem to be keenly watching when deciding on their investment strategy. “If you are looking for one theme that is probably worrying the foreign investors, it would be the lack of growth, the as-yet stalled investment cycle and stressed corporate and banking balance sheets. Credit offtake remains at multiple year lows, capacity utilisation is tepid, as are corporate results,” said Ananth Narayan, regional head of financial markets, South Asia, at Standard Chartered.

FIIs can invest up to $25 billion in government bonds with long-term foreign investors like sovereign wealth funds, central banks and insurance companies being allowed to invest an additional $5 billion above the $25-billion cap.

Foreign investors had utilised the entire quota for gilts by August last year, indicating the attractiveness of Indian paper. >> Read More

If this month’s $1.4 billion withdrawal by global funds isn’t enough to signal faltering demand for Indian bonds, here’s more evidence.
An auction of treasury bills failed for the first time since February on 13 May, while underwriters had to rescue an offering of sovereign notes two days later in the first such forced purchases since August. A sale of 2026 government bonds on 15 May saw the least bids as a proportion of debt on offer since they were first sold in November.
Appetite is waning as a rebound in oil prices coupled with the prospect of weak monsoon rains clouds the outlook for cooling inflation and interest-rate cuts. Indian sovereign bonds are the worst performers among the largest emerging markets this quarter amid a global rout. Overseas funds have turned net sellers in May after 12 straight months of purchases.
“There’s clearly a lack of appetite and investors are hesitant to add more positions,” Badrish Kulhalli, a fixed- income fund manager at HDFC Standard Life Insurance Co. in Mumbai, which manages about Rs.67,000, said in a phone interview on Tuesday. “There’s a risk of failure to meet targets at some more auctions.”
Investors in Indian government notes lost 0.3% this quarter, compared with returns of 7.6% in Russia, 3% in Brazil and 1.7% in Chinese securities, JPMorgan Chase and Co. indexes show. Indian debt was the best among so-called Bric nations in 2014.

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Everything has a cost, or so the story goes, especially time. In the Greek case we now know an additional item on the mounting bill: the country is back in recession. The issue is who – apart of course from the long-suffering Greeks themselves – will pay the extra costs of  the latest imbroglio.

 The Cost Of Not Finding A Solution

It is now clear that Greece’s economy has been going backwards over the last 6 months, and that it has once more fallen back into recession. Greek GDP fell by 0.4% in the last three month of 2014, and by a further 0.2% in the Jan – March 2015 period. As a result at the end of March Greek GDP was only 0.3% above the year-earlier level. This is a lot lower than expected in IMF forecasts, and – perhaps more importantly – well out of line with what is needed to maintain the 2022 debt sustainability targets on which continuing Fund support for Greek programmes depends.

Indeed “Greece is so far off course on its €172bn bailout programme that it faces losing vital International Monetary Fund support unless European lenders write off significant amounts of its sovereign debt”, Peter Spiegel wrote in the Financial Times on 4 May 2015. The reason for this is obvious: IMF regulations prevent the Fund continuing to make tranche payments to countries where there is a foreseeable financing shortfall during in the coming twelve months. The worsening in the Greek economic outlook and the consequent reduction in the revenue outlook effectively guarantee this shortfall.

But the sort of debt write-off the IMF is demanding of its European partners goes much deeper than that. Future IMF participation in any new Greek programme after June is also in doubt because without additional pardoning the debt will not be on a sustainable trajectory in terms of the objectives set down and  agreed upon in November 2012.  So you reach a point where extend and pretend hits the proverbial fan. You can, of course, do more extend and pretend till the next time it happens, but at this point the IMF seems reluctant to do so. On the other hand austerity-type spending cuts which only make the economy smaller and the growth path lower simply don’t help in this context, since what they give with one hand (debt reduction) they take away with the other (in the form of lower GDP).

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Technically Yours,
Team ASR,
Baroda, India.