The Daily Update - IMF and a Default Within a Default

As the IMF and sister institution, The World Bank, prepare to meet next week in Bali for the annual meeting of the 189 member nations they warn of the impact of the current trade war between the US and China. They downgraded world growth by 0.2% to 3.7% for this year and next, but the big change comes in 2020 where they think a continuation of trade tensions could knock global growth by 0.8%. They also warn that if President Trump carries out all his threats of escalation that as soon as next year output could fall 1.6% in China and 0.9% in the US according to their models.

Further, IMF concerns are for a ‘sharper rise in interest rates’ which would accelerate capital flight from emerging economies and therefore they have cut their growth outlook for Argentina, Brazil, Iran and Turkey due to a number of factors including continued tightening credit conditions.

In the UK they also moved growth down now expected to be 1.4% for 2018 and 1.5% in 2019 but included the caveat that ‘Tariffs on trade with the European Union are expected to remain at zero, and nontariff costs will likely increase moderately.’  More faith in PM May than the British press then.

Moving swiftly along, Puerto Rico over the years has issued billions of dollars’ worth of bonds and currently is trying to reschedule around $17bln in sales tax-backed bonds (COFINA). According to reports Puerto Rico had $74bln in bond debt and $49bln in unfunded pensions liabilities as at May 2017.

However, the criteria applied by the government and the Financial Oversight and Management Board created by Congress is coming in for criticism as some observers  suggest they seem to be ‘saddling Puerto Rico with escalating debt payments for the next 20 years by an unrealistic assessment of the economy’s ability to pay’. Sounds like a country to continue to avoid, unless you are in the market for defaults within an existing default.

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