From www.reuters.com:

Fitch sees more E.Europe downgrades

Ratings agency Fitch expects more downgrades in emerging Europe after cutting Russia`s rating this week, it said on Thursday, warning political risk was a mounting threat to creditworthiness in the region, Reuters reported.

Head of emerging European sovereigns Edward Parker said that with nine countries in the region on negative outlook and the financial crisis deepening, creditworthiness in a string of countries was deteriorating.

“I would expect that we would see more negative ratings actions,” he told Reuters in a telephone interview.

Parker said deepening economic pain and rising unemployment across the region heightened the risk of political instability and governments failing to take austerity measures out of fear of rising unrest.

“Clearly, there is going to be a rise in political risk,” he said. “Obviously, political shocks by their nature are often unpredictable but as well as that we would be particularly concerned over the risk of governments failing to pursue prudent and responsible policies.”

He would not say which country would likely be next to follow Russia, which on Wednesday suffered its first rating cut from Fitch in a decade on slumping reserves, corporate and banking problems and economic contraction.

But he said Fitch was watching the upcoming review of Ukraine`s International Monetary Fund deal particularly carefully.

Fitch has said previously that any failure of that deal would lead to a further negative move on Ukraine, which has suffered a currency slump and deep recession as its steel industry and banking sector suffered from the global financial crisis.

In contrast, he said that Turkey might be able to survive without an IMF deal with its current rating intact. Turkey has held back from concluding an IMF deal ahead of local elections.

“We would see an IMF deal as a positive development for Turkey,” he said. “But if one was not agreed they might be able to find other financing and it would not alone be enough for negative ratings action.”

Parker said Fitch was continuing to watch Russia closely in the aftermath of its downgrade, with ongoing low oil prices, any further loss of reserves, worsening of corporate balance sheets or difficulty refinancing debt or rising political risk potentially prompting further action.

Both Russia and Kazakhstan have allowed their currencies to depreciate after spending considerable reserves defending them. Parker said those devaluations had been necessary to take into account the drastic fall in oil prices.

With the Baltic states also entering deep recessions, some analysts believe their currencies — either pegged or trading in narrow bands — might also be forced to devalue.

Parker said this would potentially be negative for their ratings.

“It would make it more difficult for companies and others to repay foreign currency debt and it would undermine balance sheets,” he said.

Currency falls in Central and Eastern Europe were already having a similar effect, he said, with the high proportion of foreign currency loans in Hungary making it more vulnerable than other regional economies such as Poland and the Czech Republic.Technorati

Tags: www.reuters.com, Anton Olff, MBS Ltd., Fitch, Europe, Russia, credit rating, unemployment, austerity, oil reserves, International Monetary Fund, steel industry, Ukraine, Turkey, Kazakhstan, Baltic States, Eastern Europe, Czech Republic

As a resident of Odessa, I can attest to the fear out there regarding the free fall of the hryvnia.  People are downright scared and the empty stores, restaurants and cafes indicate they are not spending.

As this article from www.unian.net states, it is extremely difficult to get dollars and euros at banks or kiosks.

On a positive note, this could force the Ukrainian Government to enact needed changes which were put off during better times. After the crisis recedes, and with economic reforms, Ukraine will be at the forefront of emerging markets.

Panic as Ukraine’s currency plummets

The national currency of Ukraine, whose pro-West government wants to join the European Union, has almost halved in value in the last six months, prompting panic amongst its heavily indebted population.
The sudden fall in the hryvnia has sent Ukrainians rushing to exchange booths to change local money for hard currency, in scenes that recalled the hyperinflation suffered by the country in the early 1990s.
Not only do Ukrainian consumers have to pay back loans taken out in more prosperous times but many will also have to pay them back in dollars.

The hryvnia (UAH) was on Friday trading at 7.49 UAH against the dollar compared with 5.05 UAH at the beginning of the year and 4.84 UAH in July.

The National Bank of Ukraine has allowed the hryvnia to trade freely in line with the conditions of a 16.4-billion-dollar (12.8 billion euro) IMF loan aimed at helping the country through the financial crisis.
The hyrvnia — a currency introduced in 1996 and named after money used in ancient Kiev — has endured the ignominy of suffering one of the worst devaluations, along with the Icelandic krona, in the global financial crisis.

“I consider myself a cultivated gentleman. But at the moment I`m thinking of taking petrol and a lighter and setting the National Bank of Ukraine on fire,” said Egor Sobolev, a journalist who owes 60,000 dollars for his flat.

“We are paid in hryvnia and for the moment our family budget allows us to make monthly payments of 1,000 dollars, but if the hyrvnia falls to 10 or 15 to the dollar the Bank has a big chance of going up in flames!”

As of December 1, Ukrainian consumers had notched up debts of 235.5 billion hryvnia (31 billion dollars) some 70 percent of which (176 billion hryvnia or 23 billion dollars) has been taken out in foreign currency.

Dollars and euros were almost impossible to buy in banks and exchange offices in Ukraine in November as people flocked to trade their hyrvnia for stronger currencies.

The growth in hryvnia-denominated bank deposits was replaced in October by an outflow amounting to 10 percent of investments.

The panic reached a peak earlier this month when a newspaper reported that all dollar bank savings could be converted into hryvnias, a rumour vehemently denied by the authorities.

“Savers can only feel that they have been duped and have reason to be scared of similar surprises in the future,” said the Dzerkalo Tyjnia weekly.

“Who is going to answer for for the devastation of entire layers of Ukrainian society?”

President Viktor Yuschchenko oversaw the currency`s introduction when he was working as head of the central bank in the 1990s.

Ukraine has been among the countries hardest hit by financial turmoil as the plunging price of steel, the country`s main export, has exacerbated a credit crunch and a sharp fall in stock prices.

Underlining the country`s difficulties, Ukrainian industrial production is in freefall, crashing 15.2 percent in November compared to the previous month and 28.6 percent compared to November 2007.

Metals output in November was 23.5 percent lower than in October and a whopping 48.8 percent lower than the same figure for November 2007.

Out of the three major economies of the former Soviet Union — Kazakhstan, Russia and Ukraine — Ukraine is to see the sharpest slowdown, analysts at UBS said in a bleak research note.

“Ukraine will see the sharpest slowdown among the three countries despite support from the IMF. Its currency will have to devalue given that it has the worst net international asset position,” the UBS analysts said.

But they added that with the conditions of the IMF loan there is a “good chance” that Ukraine might finally start implementing the reforms that it had put off for 10 years.

Technorati Tags: Odessa, Ukraine, hryvnia, www.unian.net, Anton Olff, dollars, euros, Ukrainian Government, economic crisis, European Union, consumers, National Bank of Ukraine, UAH, Kiev, devaluations, Icelandic krona, Egor Sobolev, Dzerkalo Tyjnia, Viktor Yuschenko, stell, credit crunch, industrial production, Soviet Union, Russia, Kazakhstan, IMF, reforms

Contrary to the recessionary trend in the general decline of overall advertising spend, some venues will see an increase. This is particularly true of internet advertising. It reflects the evolution of media enabled by technology, and the ability of companies to precisely target (sounding very military here!!) specific markets efficiently. The bottom line is more advertising bang (effect) for the buck (dollars spent).

The recent news regarding the imminent “death” of the so-called old media outlets such as newspapers, is just the beginning of the story. Next up in the creative destruction process could be other forms of print media, and perhaps television in its current form.

The internet is replacing other forms of media by absorbing, restructuring and repackaging them. Technological innovations…such as the Apple iPhone and other data phones…are allowing the media to be disseminated to a wider audience in a more direct manner. This has opened up new forms of advertising placement which are seeing a shift,  as the article from the Russian Daily,  www.kommersant.com indicates:

Ad Market to Dip in 2009

Demand for advertising will fall 11 percent in 2009, predicts Group M, based on events on November, when all ad deals for next year were placed on hold. According to Group M, the media division of WPP, the world’s largest communications holding, Russian advertisers will cut back their activities in all media except Internet contextual advertising. While total expenditures on advertising in Russia rose 18 percent to 275 billion rubles in 2008, it will fall in 2009 to 244 billion rubles. Group M will publish its report on the coming market within the next few days. 

Projections for Russia are based on countries such as Kazakhstan and Thailand, where the economic crisis began a year or more ago, explained Konstantin Vashentsev, research director for the Maxus agency, part of Group M. He said print and outdoor advertising would be the first to feel the brunt of the crisis. In Thailand, newspapers lost 11 percent of their ad income, and magazines 12 percent, the agency says. Outdoor advertising agencies in Kazakhstan have been forced to lower their prices 30-40 percent. 

The most impressive statistics on the ad market are in the Internet. In spite of Group M expectations of 10-percent growth this year, advertising has increased 55 percent in the first nine months to 4.4-4.5 billion rubles. Outdoor ad operators experienced a 14-percent rise in income, to 33.8-34 billion rubles, in the first three quarters of the year. Russia’s largest television advertiser Video International is also optimistic. It announced yesterday that it had reached an agreement with Reckitt Benckiser, owner of the Calgon, Cillit and Vanish brands and one of Russia’s top ten advertisers (with a budget of over $58.5 million in 2007), for 2009 ad placement.

Technorati Tags: recession, advertising, Video International, Reckitt Benckiser, Calgon, Cillit, Vanish, Kazakhstan, Thailand, Konstantin Vashentsev, Maxus, Ad market, Group M, WPP, Apple iPhone, data phones, Anton Olff, Russian Daily, www.kommersant.com, print media, television, internet, creative destruction process, media, technology, old media, newspapers,

One of the side effects of the Global Economic Crisis-and we have to come up with a new name for this “crisis,” is the steep falloff in the amount of money sent home by immigrants and workers abroad. Many emerging market economies depend on this income to sustain themselves. The fallout from the falloff could be huge…..

Technorati Tags: Global Economic Crisis, State Real Property Cadastre, Bishkek, Chisnau, Kyrgyz Republic, Akylbek Japarov, Armenia, Matthias Luke, Kiel Institute, Kazakhstan, Uzbekistan, construction, Russian government, Anton Olff, external finance, Russia, United States, Western Europe, Dushanbe, World Bank, IMF, Shigeo Katsu, Tajikistan, Moldova, NGO, CIS countries, recession, Clare Nuttall, Almaty, Organization for Economic Co-Operation and Development (OECD), remittance payments, emerging markets,

This article is from one of our favorite bloggers: Mike Hewitt provides the “big picture” of individual nations relative to the global economy.  The picture is not pretty for many.

http://www.financialsense.com/fsu/editorials/dollardaze/2008/1205.html

The extreme level of public debt in developed nations in particular…and these charts don’t measure corporate and private debt…portend an almost certain re-alignment of economic power.  China for example, can be compared to the United States at the beginning of the 20^th century. The United States is now like post World War II Britain. It may never fully recover.

The  result of the changes is the full emergence of transition economies.  Unburdened by massive debt, with growth oriented economies that have incorporated  free market mechanisms,  emerging market economies could  take the lead a lot faster than previously reckoned. Indeed, that may be the “silver lining” in the current economic cloud.

Technorati Tags: China, United States, World War II, Britain, www.dollardaze.org, Mike Hewitt, Wealth of Nations, debt, transition economies, emerging markets, corporate debt, private debt, Anton Olff, Intermational Monetary Fund, IMF, G-7, Japan, Germany, UK, France, Italy, Canada, government liabilities, Foreign Reserves, Sovereign Wealth Funds, United Arab Emirates, Abu Dhabi Investment Authority, Dubai Workd, Singapore, Temasek Holdings, Norway, Government Pension Fund of Norway, Kuwait, Kuwait Investment Authority, China, China Investment Corporation, Australia, Australian Government Future Fund, Qatar, Qatar Investment Authority, Libya, Libya Investment Authority, Alaska Permanent Fund, Brunei, Brunei Investment Agency, South Korea, Korea Investment Corporation, Kazakhstan, Kazakhstan National Fund, Chile, Copper Stabilization Fund, Russia, Russian National Wealth Fund, Malaysia, Khazanah Nasional, Canada, Alberta Heritage Fund, Taiwan, National Stabilization Fund, Bahrain, Bahrain Mumtalakat Holding Company, Iran, Oil Stabilization Fund, Oman, State General Reserve Fund, Saudi Arabia, Saudi Arabia Sovereign Wealth Fund, foreign reserve holdings, India, Brazil, Algeria, Mexico, Switzerland, Turkey, Hong Kong, Poland, Nigeria, Indonesia, Argentina, Romania, Venezuela, Netherlands, Spain, CIA,