IFM Correspondent

November 14, 2016: Mortgage rates have quickly surged ever since Trump was declared the victor of the US presidential election. Rates modestly changed, with the benchmark 30-year fixed mortgage rate rising to 3.73 percent, according to Bankrate.com’s weekly national survey.

After results of the elections came out, financial markets expected turmoil. However, Trump’s acceptance speech soothed investors who were previously sceptical about a Trump victory.

The prospects of higher government spending and more government borrowing for infrastructure improvements sent long-term Treasury yields racing higher. The 10-year Treasury note yield soared above 2 percent on November 8, closing at 2.07 percent, the highest since January 22.

The benchmark 15-year fixed-rate mortgage rose to 2.97 percent from 2.96 percent while the benchmark 5/1 adjustable-rate mortgage rose to 3.15 percent from 3.14 percent.

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IFM Correspondent

November 14, 2016: Investors endured a rocky day of trading after the shock election of Donald Trump as the next US president sparked a bout of unusual volatility that rocked financial markets around the world.

Shares and bonds whipsawed violently as initial concerns about a Trump presidency gave way to cautious optimism that the businessman-turned-reality-television-star would be less divisive than originally feared.

The FTSE 100 dropped as much as 146.8 points at the opening of trade, only to recover remarkably and close up 68.71 points, or 1pc, at 6,911.84, a rally mirrored in Europe and the US. While futures on the Dow Jones Industrial Average at one point plunged more than 800 points, the US benchmark index was up 1.4pc, or more than 256 points, by the end of the day, just 0.25pc off its record high set in August.

Mark Haefele, global chief investment officer at UBS Wealth Management, said Mr. Trump’s acceptance speech, in which the Republican outsider with no government experience struck an unexpectedly conciliatory tone, soothed some investors’ worst fears.

“We clearly saw the market turn when Donald Trump began speaking and rather than continuing with divisive campaign rhetoric, thanked Hillary Clinton, said he would reach out to all Americans and the Democrats for guidance,” said Mr. Haefele.

In the early hours, before his speech, markets initially panicked as it became apparent he would win, with Japan’s Nikkei 225 stock index slumping 5.4pc and the dollar sharply weaker.

“We had a knee-jerk reaction,” said Phil Poole, head of research at Deutsche Asset Management. However, hopes that Mr. Trump will pursue pro-business policies that will stimulate economic growth, along with his overtures towards the Democrats, helped to spark a rally in the dollar and equities, and saw gold fade.

“He spoke about jobs, he spoke about lower taxes, he also spoke about infrastructure,” said Mr. Haefele. Investors are now betting that Mr. Trump’s focus on infrastructure spending and tax cuts will be inflationary. Treasuries, which had earlier been in demand, were sold-off and 10-year yields spiked as high as 2pc.

Stock markets were also buoyed by expectations among some investors that global central banks will keep monetary policy loose amid the uncertainty caused by Mr. Trump’s victory, although the consensus was still for the US Federal Reserve to hike rates in December.

“People have taken a view that this doesn’t change the over-riding importance of monetary policy and that monetary policy is going to remain extremely loose,” said Mr. Poole.

As the shock waves from the election rippled through the business world, JP Morgan boss Jamie Dimon warned employees in a memo that “we need to listen to those voices” that elected the Republican. Analysts also urged caution that investors should not be over-optimistic.

“If we look at all his pronouncements around policy, they’re not necessarily consistent, they’re not well fleshed out,” said Mr. Poole. “Investors need to watch very closely who Trump appoints, what his team’s going to look like and the extent to which that team is experienced. These are all going to be very important signals in determining just what kind of Trump we’re going to get.”

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IFM Correspondent

November 4, 2016: US employers hired more workers in October and also hiked the wages of existing workers. Businesses added 175,000 jobs to the US economy in October and 156,000 jobs in September, while the unemployment rate ticked up to 5%.

“The expected payroll gains should easily meet the Fed’s criteria of some further progress in the labour market, which leaves us with a rate hike in December,” said Harm Bandholz, chief US economist at UniCredit Research in New York.

The economy continues to grow in terms of employment as well as economic growth. This could effectively cause the Federal Reserve to hike interest rates in December, as it is felt that the economy is capable of absorbing such a move.

The Fed had voted to keep the rates unchanged for now. Though the US central bank is expected to increase borrowing costs in December, that decision will likely depend on the outcome of the presidential election on November 8. The presidential race between Democratic candidate Hillary Clinton and Republican Donald Trump has rattled financial markets.

Usually, stocks rise before an election but this time, the presidential election has managed to disrupt the usual pattern in the equity markets. US stocks are falling due to the uncertainty over the result.

The trend in employment growth has slowed as the labour market nears full employment and the economy’s recovery from the 2007-09 recession shows signs of aging.

Nevertheless, there has been an increase in average monthly earnings, which grew by 0.3% in October from its previous position of 0.2% in September.

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IFM Correspondent

November 3, 2016: The Federal Reserve on November 2 hinted at hiking interest rates in December. For now, officials voted to keep rates unchanged following a meeting in Washington. They emphasised that the pace of rate hikes will depend on evolution of the economy.

“The committee judges that the case for an increase in the federal funds rate has continued to strengthen, but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” the Federal Reserve stated.

Volatility in the financial market due to uncertainty surrounding the result of US presidential election is the reason behind the Reserve’s decision not to hike interest rates immediately. US stocks and the dollar have taken a hit because of this very reason.

The US economy continues to grow in terms of employment as well as overall economic growth. Inflation finally appears to be picking up, although it remains below the Fed’s target of 2%. The Fed stated that it will need more evidence to substantiate that employment and inflation are on track according to the central bank’s goals before proposing a hike in interest rates.

The performance of the economy is creating confidence that it will be able to withstand increase in interest rates. The Fed plans to raise interest rates gradually.

A majority of investors expect the Federal Reserve to hike interest rates in the near future.

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IFM Correspondent

November 3, 2016: US stocks fell to the lowest since July amidst the uncertainty surrounding the presidential election after one poll suggested Donald Trump could win.

The latest ABC/Washington Post poll shows US presidential candidates Hillary Clinton and Donald Trump are neck-and-neck, with Donald Trump leading by just one point. The share price declines sent leading equity indices to their lowest level since Britain’s exit from the European Union.

Stocks pared losses after falling steeply in early afternoon trading as the S&P 500 breached a key technical level. The Dow Jones Industrial Average slipped 105.32 points, or 0.6 percent, to 18,037.10. The Nasdaq Composite Index dropped 0.7 percent, and the CBOE Volatility Index surged 8.8 percent to the highest since June 28.

The presidential race between Democratic candidate Hillary Clinton and Republican candidate Donald Trump has appeared to tighten in the past week following news that the FBI is investigating more emails as part of a probe into Clinton’s use of a private email system.

Investors anticipate turmoil in the market in the final stretch leading up to one of the most controversial elections in US history. There appears to be a general consensus among analysts that a Clinton win is likely to be good for the dollar as opposed to a Trump win. But anxiety and uncertainty is on the rise because, according to the latest polls, Hillary Clinton no longer appears to be in the lead. The market had accounted for Clinton winning but appears unprepared for Trump.

There are no major movements but as many investors are anxious about the outcome of the elections, there has been minor selling.

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IFM Correspondent

September 6, 2016: Presidential nominee Hillary Clinton has accused Russia of interfering with the US elections. “It is almost unthinkable”, Clinton said referring to reports of Russia’s alleged involvement in US elections citing the hacking of Democratic National Committee’s emails.

“We’ve never had the nominee of one of our major parties urging the Russians to hack,” Clinton said in a news conference. “I want everyone — Democrat, Republican, Independent — to understand the real threat that this represents.”

Clinton urged for non-complacency and stressed that foreign enemies who hope Donald Trump will succeed in order to weaken the United States, may try to disrupt the November results, perhaps with a cyber attack.

Clinton delivered a harsh assessment of the Russian leader’s role in the hacking hours after President Barack Obama met President Vladimir Putin at the Group of 20 summit in China.

“When Putin was asked about it, he could barely muster the energy to deny it, if any of you saw it,” Clinton said, adding that the Russian president, whom she clashed with as secretary of state, “and the team around him certainly believe that there is some benefit to them to doing this.”

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IFM Correspondent

August 25, 2016: Outgoing UKIP (UK Independence Party) leader Nigel Farage urged Republicans to “get your walking boots on” and drum up support for Republican presidential nominee Donald Trump.

Farage addressed around 15,000 activists in Mississippi and said the party could beat the pollsters in the presidential race. As the leader of UKIP, Farage stood up to the EU and is credited for Brexit. “We reached those people who have never voted in their lives but believed by going out and voting for Brexit, they could take back control of their country, take back control of their borders and get back their pride and self-respect.”

Trump, who is trailing his rival Hillary Clinton in the opinion polls, backed the UK’s exit from the EU.

Farage drew on parallels between Trump’s bid for the White House and that of the Brexit campaign.  He said he “would not vote for Hillary Clinton even if you paid me”.

Trump referred to a report by Associated Press that showed more than half the people Clinton met as secretary of state were donors to the Clinton’s family foundation.  “It’s hard to tell where the Clinton Foundation ends and the state department begins,” Trump said adding that “she does not believe in America first, she believes in donors first. And special interests. And lobbyists.”

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Kamilia Lahrichi

Oct 27,2014: The two contenders who won Uruguay’s first round of the presidential election on October 26 will not bring about any radical economic change for this small country wedged between two regional heavyweights – Argentina and Brazil.

This nation of 3.4 million people earned the sobriquet “Switzerland of South America” because of its democratic tradition and strong economic growth, a model for its unstable neighbours.

Leandro Zipitría, an Economic Consultant and Professor at the University of Montevideo in Uruguay, explained that Tabare Vazquez, the leftish Broad Front contestant and Lacalle Pou, from the conservative National Party, do not have economic programs notably different than President Jose “Pepe” Mujica’s.

Their political platforms diverge in respect to social policies, namely education and crime reduction.

Mr. Vazquez led the country from 2005 to 2010. He expanded the welfare system to reform the education system and improve working conditions.

Mr. Pou is the son of former president Luis Lacalle. Under the banner “New Hope”, he has reached out mainly to the Uruguayan youth with a focus on education, culture and agriculture.

Following the footsteps of “the most humble” leader

Despite his popularity, President Mujica cannot run for a second mandate because Uruguay’s constitution bars consecutive presidential terms.

He will be remembered as “the poorest” and “the most humble” president due to his austere lifestyle. “Pepe” shunned the lavish presidential mansion and lives in a modest farmhouse on the outskirts of the capital Montevideo with his wife and his three-legged dog.

He gained international renown as he gives away 90% of his salary to charity. He also drives a 25-year-old Volkswagen Beetle.

This 79-year old ex-guerilla was tortured and isolated during 14 years in jail. He was freed in 1985 when Uruguay returned to democracy after more than a decade of dictatorship.

Notwithstanding that the economy has grown significantly during his mandate, the truculent head of state has lambasted rampant consumerism in international summits.

At the United Nations General Assembly in New York in 2013, he said: “it seems that we have been born only to consume, and to consume”.

At the Rio+20 conference in 2012, he asked: “what would happen to this planet if Indians would have the same proportion of cars per household as Germans? How much oxygen would we have left?”

Standing out in Latin America

Despite slowing growth in neighboring countries, affluent Uruguay grew on average by 6.2% from 2004 to 2011, compared to a global average of 2.9% and a Latin American average of 4.5%.

“Uruguay has become a small diamond in a rocky landscape,” noted Claudio Loser, visiting senior fellow at the Inter-American Dialogue, a centre for policy analysis in Washington D.C.

The World Bank sets out that Uruguay’s gross domestic product (GDP) grew by 4.4% in 2013. In comparison, the economy of Brazil – Latin America’s largest with 200.4 million people – grew by only 2.5% in 2013.

The South American giant’s GDP reached US$2.246 trillion in 2013 – 40 times Uruguay’s.

While the Argentine and Brazilian economies are highly protectionist, Uruguay is a   “mostly free” marketplace, according to the 2014 Index of Economic Freedom. It assesses the level of economic freedom based on the rule of law, regulatory efficiency, state intervention and open markets.

The Index indicates that Argentina is “repressed” since 2000 – the lowest level of economic freedom. Brazil became “moderately free” for the first time in 2014.

Hence, “Uruguay appears to be the logistical and financial centre of Mercosur,” said Nestor Pablo Aleksink, Executive Director of the Program Argentina Export, an organisation promoting exports, during a press conference in Buenos Aires on October 21.

The Common Market of the South (Mercado Comun del Sur in Spanish) is a free trade bloc and customs union including Brazil, Argentina, Uruguay, Paraguay and Venezuela. It has a combined GDP of about US$3 trillion.

Uruguayan government officials argue that the country could become a regional door to Asia as China is its biggest export market.

A March 2012 report titled “Uruguay: Economy and Institutions, the Key to Success” released by the Ministry of Economy and Finance points out that the country has the only deep harbours of South America. They operate under a free port regime.

Thanks to its 45 kilometres of paved roads per 1,000 square kilometre, Uruguay has also the most dense highway network in the region.

Sound macroeconomic and investment policies  

Although Uruguay’s economy expanded by only 3.9% in 2012, Mr. Zipitría pointed out to three factors that boosted economic growth in the past decade.

“First, Uruguay has seen an important increase in the price of commodities it exports,” he noted. Exports of soybeans, meat, rice, sulfate chemical wood pulp and wheat more than tripled in the last decade.

In addition, investment increased fivefold in the last 10 years mainly due to massive foreign investment in paper pulp.

“Thirdly, the government has had a pragmatic approach to economics, propelling some important reforms like a new bankruptcy law, a new tax law [and] a non-discretionary tax reduction decree to foster investment,” he concluded.

Uruguay offers a positive investment environment as the tax system is neutral with respect to foreign investors. Also, there are no limits for foreign capital in companies. A 2007 decree incentivises local and foreign investors with income tax cuts for businesses.

Uruguay, hence, regained investment grade status by Fitch Ratings, Standard and Poor’s and Moody’s Investors Service.

A May 2014 Moody’s Investors Service’s Global Credit Research notes “moderate credit risks, and the country’s reduced vulnerabilities to regional and commodity shocks”. The rating agency forecasts a “steady increase in the investment ratio and productivity gains.”

Yet, a high inflation rate remains a challenge for policy-makers. It stands at 9.1% – well above the central bank’s target of 5% plus to minus 2%.

Slamming the door of Mercosur?

The saying goes: when Brazil or Argentina sneezes, Uruguay catches a cold.

In 2001-2002, Uruguay followed Argentina into crisis because it was commercially tied to the fortune of its ailing neighbour. Uruguay was hit hard: poverty reached 40% and the unemployment rate 20%.

This was caused, in part, by the boom-bust cycle of Argentina’s massive 2001 default, which significantly affected trade flows with its neighbour. The county ran out of cash and faced difficulties in production capacity.

Unlike Argentine, Uruguay handled its recovery efficiently. It achieved macroeconomic stability while tackling its population’s social needs. In fact, it was able to access international credit markets quickly and secured US$1.5 billion from the United States Treasury in 2002.

Uruguay, which today depends less on trade with Argentina, has a robust economy with a well-regulated banking system. It thereby lives up to its reputation as “el país corajudo” (the plucky country in Spanish). Exports to Argentina have fallen from 25% to 4% in a decade.

Uruguay does not rely exclusively on Brazil either so that if the South American giant reduces its demand, Uruguay can strategically reorient its market, explained Minister of Commerce Mario Bergara in September 2014. Uruguay now exports commodities to 140 countries, such as the Netherlands, China and Russia.

In addition to keeping itself safe from unstable neighbors, Uruguay has diversified its goods exports with new segments, namely paper pulp and soybeans.

Thus, “Mercosur has lost its path,” said Mr. Zipitría.

Notwithstanding that the regional free trade zone has sought to boost commerce, discord among member states has stymied economic progress.

“The politics that Argentina is applying today does not favour the process of [regional] integration,” said Mr. Aleksink, in reference to heavy-handed policies to protect the local economy.

Besides, the union of leftist governments in Mercosur appears more ideological than practical.

“Although Uruguay has managed to attract foreign investment, there are some tensions within [the Broad Front] in the government that tends to evaluate international interests in ideological terms, and less in pragmatic terms,” explained Mr. Zipitría.

The political coalition deems trading with foreign countries a “heresy towards Mercosur.”

“If the political direction changes in any of these countries [Argentina, Brazil and Venezuela], maybe the winds could change in Uruguay too,” he added before the presidential election in Brazil on October 26.

Left-leaning president Dilma Rousseff came first before centrist economist Aécio Neves in the race in Brazil

A unique model

Thanks to advanced education and social security systems as well as the legalisation of abortion and gay marriage, Uruguay has pioneered a unique social model in the region.

It was coined “The Netherlands of Latin America” too because of its progressive social laws: Uruguay is the first country on the planet to legalise the production, selling and consumption of marijuana, as part of a groundbreaking experiment.

President Mujica declared that drugs are an “economic power”: drug trafficking exists because there is demand.

Besides, along with its Argentine neighbour, Uruguay has achieved gender development parity. In contrast to most Latin American countries, the nation has one of the lowest perceived levels of corruption in the world.

More stories:

Brazil’s President Rousseff stays in power

Bolivia’s Evo Morales wins a third consecutive term

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Kamilia Lahrichi

October 17,2014:Since his first election in 2005, Evo Morales has propelled economic growth in what was once one of the worst performing economies in Latin America, and enacted redistributive policies thanks to soaring gas prices.

About 60% of Bolivia’s 10 million voters approved the policies of incumbent President Evo Morales, who thus coasted to a third consecutive term as Bolivia’s first indigenous leader on October 12, the national Day of Decolonization.

He avoided a run-off by winning 50% of valid votes from his “brothers and sisters”. His closest rival won one-fourth of the vote.

The left-leaning president, an Aymara Indian and a former coca farmer, becomes the longest serving leader and incumbent head of state in the Andean country.

With cheering supporters filling up Murillo Square in the capital La Paz, President Morales said his re-election was a “triumph of the Bolivian people”. He also stressed how important it is “to govern for the benefits of the people.”

“We are going to make Bolivia the energetic centre of South America,” he said, as the crowd chanted “ole, ole, ole”.

President Morales’ conquest of the highest seat is significant as it is the first time all registered Bolivian voters (including about 280,000 nationals living in 33 countries) could cast their ballots.

Originally from a rural community in Sud Carangas – a province suffering from a dearth of electricity and sanitary facilities in the 1990s – President Morales has been popular amongst indigenous people and trade unions.

In the past eight years, he has boosted economic growth thanks to soaring hydrocarbon exports and booming private consumption. He has also significantly improved the lives of long-suffering indigenous people. More than two-thirds of Bolivia’s population is of indigenous origin.

The platform of President Morales’ political party, the Movement Toward Socialism, revolves around reducing extreme poverty, fostering nuclear energy to ensure Bolivia’s energetic independence and developing infrastructure.

Victory no surprise

President Morales’ landslide victory does not come as a surprise.

A June 2014 survey released by the market research company IPSOS set out that his approval rating reached 73% – up from 60% the previous month.

It found that 40% of his proponents endorsed the Morales administration because of its efforts to build roads, airports and schools as well as deliver gas to Bolivians’ homes. They acknowledged that nationalising hydrocarbon riches has enabled redistribution of wealth.

Opponents said his administration did “not govern for all” and has antagonised many middle-class Bolivians. They constitute the core of the right.

Opposition parties criticised President Morales’ candidacy on the ground that he has defied the 2009 constitution, which sets a two-consecutive term limit.

Bolivia’s Supreme Court ruled in April 2013 that President Morales’ first presidency – from 2006 to 2009 – did not qualify as a full term because it was interrupted when the 2009 constitution was adopted. Hence, it allowed him to run again.

A fragmented opposition

President Morales trounced centre-left candidate Samuel Doria Medina, his main rival in this election.

Mr. Medina, a cement magnate who graduated from the London School of Economics, failed to lead the country in 2005 and 2009. He has called for austerity measures to reduce “excessive” government spending.

The centre-right tycoon has also proposed to split half of national revenues from the gas industry with foreign investors.

President Morales also alienated former conservative president Jorge “Tuto” Quiroga who took over from August 2001 to August 2002 after a popular uprising ousted the former president Sanchez de Lozada.

Mr. Quiroga’s platform focuses on neoliberal policies, namely ensuring an open market.

From slow growth to high performance

President Morales reaped the benefits of Bolivia’s strong economic performance. The country had one of the worst performing economies in Latin America at the beginning of the century.

Yet, the United Nations Economic Commission for Latin America and the Caribbean forecasted in August 2014 that the Bolivian economy will expand by 5.5% in 2014. In comparison, the region is expected to grow by 2.2% on average this year.

Thanks to “prudent” macroeconomic policies that kept inflation in check and cut down public debt, Bolivia’s gross domestic product (GDP) grew from 3.4% in 2009 to 6.8% in 2013, according to the World Bank.

This is the highest growth rate of the last thirty years. GDP has grown by an annual average of 5.2%, one of the highest in the region.

As a result, Standard & Poor’s raised Bolivia’s long-term debt rating to BB in May 2014. “Many years of good economic growth and fiscal and current account surpluses have reduced Bolivia’s debt burden, strengthened external liquidity, and increased economic resilience against negative shocks,” reads the statement.

Following neoliberal governments, President Morales has fostered state-led economic policies. He re-nationalised strategic sectors, namely hydrocarbons, telecommunications, electricity and some mines.

The head of state regularly lambasts the United States’ economic model. He said that “predatory capitalism” impoverishes people, especially indigenous cultures, at the United Nations General Assembly in New York on September 24.

It is the most isolated country in the region, but landlocked Bolivia sits atop the second-largest gas reserves in Latin America after Venezuela.

Natural gas has been the state’s main income, especially during the past years of high commodity prices. “El gas es nuestro” (“the gas is ours” in Spanish) said President Morales when he was first elected in 2006.

The new Bolivian Hydrocarbons Law voted the same year declared national ownership of natural resources. The law also required companies to consult with indigenous communities living on land containing gas bonanza.

President Morales benefited from high international commodity prices and increased exports of natural gas.

In addition, he considerably increased public spending whilst maintaining a balanced budget to improve infrastructure and provide social services.

Since the mid-2000s Bolivia nearly tripled its income per capita and reduced poverty, according to the International Monetary Fund (IMF).

“Large salary increases, bonuses and public expenditure have propelled domestic consumption to record levels and a fixed peg to the dollar that in turn [gave an] incentive to consumption domestically and have risen imports,” said Guillermo Alborta, consultant for the Inter-American Development Bank and IMF in Washington D.C.

He explained that in the past four years, real estate asset prices have risen significantly in the main cities. Besides, the streets of La Paz seem to be always in construction as new buildings are being erected.

“Coupled with twin surpluses in the fiscal and external accounts, net international reserves have increased to almost 50% of GDP, providing ample buffers against external shocks,” concluded the IMF Executive Board in February 2014.

Yet, “I think that the Bolivian people particularly appreciate the socio-political changes that are happening,” explains Beatriz Muriel H., Doctor of Economics and Senior Researcher at the INESAD Foundation, a think tank in La Paz.

“Economic policies are much less understood,” she said.

Challenges ahead

Despite being hailed as a champion of the poor – the minimum wage rose by 20% from 2013 – President Morales has still to close the income gap with the rest of the region. He also has to develop labour-intensive sectors, especially agriculture, which lags behind extractive activities.

In addition, “public investment in infrastructure and state own companies need to be formally appraised and evaluated,” said Mr. Alborta.

“There are contract announcements of new state companies but no one has presented financial statements or results of those investments. Investment results must be shown to make this new model sustainable,” he added.

Finally, commitment to state ownership of natural resources – President Morales’ linchpin – could compromise the country’s attractiveness from investors’ standpoint. Private sector investments remain weak in Bolivia as the head of state has pushed for heavy state intervention in all sectors of the economy.

The newly elected president “should focus on long-term growth to improve the quality of jobs,” said Ms. Muriel.

“This involves working in a closer and broader way with the private sector, mainly the industrial sector, and facilitate the activities of these actors so that economic change is structural and not in the short-term only,” she added as she warned of a potential Dutch disease.

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