Posts Tagged ‘International Monetary Fund’

IMF Concludes Financial Sector Stability Assessment with China — Debt growing at a “dangerous pace” and needs action to avert a crisis

December 7, 2017

AFP

© AFP | The International Monetary Fund report scrutinised the stability of China’s financial system

BEIJING (AFP) – The International Monetary Fund on Thursday warned of brewing risks in China’s banking system as it found dozens of crucial lenders needed to beef up their protection against possible financial crises.The report comes a day after regulators in Beijing drafted new rules to strengthen bank funding and follows a number of alerts about a ballooning debt problem in the world’s number-two economy.

Near the top of the list in the IMF study scrutinising the stability of China’s financial system is the need for banks to increase their capital to ward off risks from mounting debt.

China has largely relied on debt-fuelled investment and exports to drive its tremendous economic growth, but the IMF said this model has reached its limits.

Part of the problem lies in high growth targets, the IMF said, which incentivise local governments to extend credit and protect failing companies.

“We recommend the authorities to de-emphasise the GDP” growth, Ratna Sahay, deputy director of the IMF’s Monetary and Capital Markets Department, said during a news conference.

China should “incite local governments to strengthen supervision on risks”, she said.

Abundant credit allows local governments to hit high growth figures but now each extra dollar of debt is producing diminishing returns.

The ballooning debt — estimated at 234 percent of gross domestic product by the IMF — adds financial risk and may weigh on China’s future economic growth.

“Credit growth is an important indicator of future financial distress, because lending standards often fall in the rush to make more loans,” IMF experts warned in a blog post.

– Zombie companies –

The fund’s experts carried out stress tests on dozens of banks.

China’s big four banks had adequate capital but “large, medium, and city-commercial banks appear vulnerable”, the IMF said.

It added that 27 out of 33 banks tested, accounting for three-quarters of China’s banking system assets, were “undercapitalised relative to at least one of the minimum requirements”.

The China Banking Regulatory Commission on Wednesday released a draft of fresh rules to tackle those issues.

The latest regulations call for new indicators to monitor commercial banks’ liquidity and set related requirements.

They will “strengthen management of liquidity risk for banks and protect the safety and stability of the banking system”, the commission said.

In some cases local banks face pressure to lend to politically important companies, as local governments aim to maintain high employment even if that means cash-bleeding enterprises continue to operate.

These loss-making firms, often state-owned, have come to be known as zombie companies, and banks and investors fund many of them as if they will not be allowed to fail.

“Implicit guarantees and the government’s desire to support growth encourage these firms to invest excessively, raising already-high leverage while weakening performance on profitability and debt service capacity,” the fund wrote in a recent report.

The IMF in October warned China’s dependence on debt was growing at a “dangerous pace” and needed to act to avert a crisis.

That came weeks after the Bank for International Settlements — dubbed the bank of central banks — said the banking sector could be facing an imminent blowout, raising worries about its effect on the world economy.

The IMF’s latest assessment said financial engineering helped banks obscure the potential losses.

“Implicit guarantees to SOEs (state-owned enterprises) need to be removed carefully and gradually,” Sahay said.

“It would be wise to have a high-level committee to monitor the risks across all sectors.”

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IMF Executive Board Concludes Financial Sector Stability Assessment with China

December 6, 2017

On November 10, 2017, the Executive Board of the International Monetary Fund (IMF) discussed the IMF’s latest Financial System Stability Assessment (FSSA) of the People’s Republic of China.[1]

Since the 2011 Financial Sector Assessment Program (FSAP), China’s impressive economic growth has continued, and it is now undertaking a necessary but prolonged economic and financial transformation. While the financial system has facilitated this high growth rate, it has developed rapidly in size and complexity, and it has emerged as one of the world’s largest with financial assets at nearly 470 percent of GDP.

Tensions, however, have emerged in various areas of the Chinese financial system. First, monetary and fiscal policies aimed at supporting employment and growth have, in recent years, been expansionary. Pressures to keep non-viable firms open—rather than allowing them to fail—are strong, particularly at the local government level, where these objectives, at times, conflict with financial stability. As a result, the credit needed to generate additional GDP growth has led to a substantial credit expansion resulting in high corporate debt and household indebtedness rising at a fast pace, albeit from a low base.

Second, demand for high-yield investment products coupled with strengthening oversight of the banking sector has led to regulatory arbitrage and the growth of increasingly complex investment vehicles. Risky lending has thus moved away from banks toward the less-well-supervised parts of the financial system. Non-bank financial institutions, including asset managers and insurance companies, which offer a proliferation of investment products, have grown even faster than the banking sector. Banks continue to be positioned at the core of this highly interconnected system of indirect lending, with uncertain linkages among numerous institutions constituting a challenge for supervision.

Third, widespread implicit guarantees have added to these risks. A reluctance among financial institutions to allow retail investors to take losses; the expectation that the government stands behind debt issued by state-owned enterprises and local government financing vehicles; efforts to stabilize stock and bond markets in times of volatility; and protection funds for various financial institutions, have all contributed to moral hazard and excessive risk-taking.

The system’s increasing complexity has sown financial stability risks. Given the centrality of banks to the financial system, the FSAP team recommended a gradual and targeted increase in bank capital. The authorities have recognized these risks, including at the highest level, and are proactively taking important measures to address them. These include the strengthening of systemic risk oversight, further improving regulation, and moving toward functional supervision.

Executive Board Assessment

Executive Directors broadly agreed with the findings and recommendations of the FSSA. They welcomed the significant steps taken by the People’s Bank of China and regulatory agencies to strengthen financial sector supervision against a background of rapid financial sector growth and deepening. Directors commended the authorities for major reforms undertaken since the 2011 FSAP, notably in introducing Basel III standards, a risk‑oriented solvency standard for insurers and improving oversight of securities market products. They encouraged the authorities to implement the recommendations of the FSSA to further strengthen systemic risk analysis and oversight, data quality and collection, and information sharing.

Directors noted the tension between sound microprudential oversight and significant risks posed by credit overhang and “shadow banking”. They noted thatunresolved tensions between policies promoting the economic and financial transition and concerns to smooth the effects of adjustment—notably by maintaining GDP growth and protecting employment—could give rise to financial stability risks. In this context, they encouraged the authorities to align incentives at the national and regional levels to ensure that due priority is given to financial stability. For this, enhancing supervision of financial conglomerates and carefully sequenced reforms to tackle implicit guarantees, including for financial institutions and state‑owned enterprises, will be important. Directors also recommended further efforts to ensure credible loan classification and uniform treatment of similar financial market products.

Directors stressed the importance of adequate legal protection, clear institutional mandates and accountability to ensure sufficient independence and resources for oversight agencies to act effectively and foster interagency cooperation. Clear prioritization of financial stability over development objectives at the agency and cross‑sectoral levels—including in the proposed Financial Stability Sub‑Committee—will be crucial to ensure that risks outside the regulatory perimeter are monitored. There is also a need for increased emphasis on functional supervision in addition to the current institution‑based approach. Strengthening the financial safety net and the legal framework for bank resolution would improve incentives and reduce the potential risks to public resources that could arise from the failure of financial institutions.

Directors noted the significant expansion of fintech in the Chinese market and its benefits for financial inclusion and urged the authorities to further develop the oversight framework for digital finance, balancing innovation with safety and soundness.

Directors welcomed the progress in enhancing the AML/CFT framework. They called on the authorities to overcome remaining deficiencies and continue with efforts to align the framework with the revised Financial Action Task Force standard.


[1] The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector. FSAPs provide input for Article IV consultations and thus enhance Fund surveillance. FSAPs are mandatory for the 29 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA), which is discussed by the IMF Executive Board. In cases where the FSSA is discussed separately from the Article IV consultation, at the conclusion of the discussion, the Chairperson of the Board summarizes the views of Executive Directors and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in a summing up can be found here:
http://www.imf.org/external/np/sec/misc/qualifiers.htm

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: TING YAN

PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG

http://www.imf.org/en/News/Articles/2017/12/07/pr17469-china-imf-executive-board-concludes-financial-sector-stability-assessment

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Former Yemeni strongman Saleh played his last hand and lost — “He danced on the heads of snakes”

December 4, 2017

Image may contain: 11 people, people smiling, crowd

FILE PHOTO: Yemen’s former President Ali Abdullah Saleh gestures as he arrives to a rally in Sanaa February 27, 2013. REUTERS/Khaled Abdullah/File Photo Reuters

DUBAI (Reuters) – Yemen’s steely former president of 33 years, Ali Abdullah Saleh, made his last political gamble and lost on Monday, meeting his death at the hands of the Houthi movement, his erstwhile allies in the country’s multi-sided civil war.

Officials in his General People’s Congress party (GPC) confirmed to Reuters that the 75-year-old Saleh had been killed outside the capital Sanaa in what Houthi sources said was an RPG (rocket-propelled grenade) and gun attack.

A master of weaving alliances and advancing his personal and family interests in Yemen’s heavily armed and deeply fractious tribal society, Saleh unified his country by force, but he also helped guide it toward collapse in its latest war.

The Middle East’s arch-survivor once compared running Yemen to “dancing on the heads of snakes”, ruling with expertly balanced doses of largesse and force.

He outlived other Arab leaders who were left dead or deposed by uprisings and civil wars since 2011.

Cornered by pro-democracy “Arab Spring” protests, Saleh wore a cryptic smile when signing his resignation in a televised ceremony in 2012.

Saleh waged six wars against the Houthis from 2002 to 2009 before he made an impromptu alliance with the group that seized the capital Sanaa in 2014 and eventually turned on him.

The two sides feuded for years for supremacy over territory they ran together. The Houthis probably never forgave his forces for killing their founder and father of the current leader.

Fearing the Houthis are a proxy for their arch-foe Iran, the mostly Gulf Arab alliance sought to help the internationally recognized Yemeni government win the conflict.

Saleh’s army loyalists and Houthi fighters together weathered thousands of air strikes by a Saudi-led military coalition in almost three years of war.

As the conflict wrought a humanitarian crisis, mutual sniping about responsibility for economic woes in northern Yemeni lands that they together rule peaked on Wednesday when the capital erupted in gunbattles between their partisans.

ARCH-SURVIVOR

Saleh had seemed unshakeable in one of the world’s poorest and unstable countries. He managed to play his enemies off against each other as tribal warfare, separatist movements and Islamist militants destabilized Yemen.

He survived a bomb attack in his palace mosque in 2011 which killed senior aides and disfigured him. As other leaders were toppled by the Arab Spring uprisings, he found a way to retire peacefully to his villa in the capital and plot a comeback.

Despite being forced to step down in 2012 under a Gulf-brokered transition plan following protests against his rule, Saleh won immunity in the deal and remained a powerful political player.

The ever-nimble Saleh was a pivotal figure in the war, which has killed at least 10,000 people, displaced 2 million from their homes, led to widespread hunger and a cholera epidemic.

Saleh became the ruler of North Yemen in 1978 at a time when the south was a separate, communist state, and led the unified country after the two states merged in 1990.

Opponents often complained that Yemen under Saleh failed to meet the basic needs of the country’s people, where two of every three live on less than $2 per day.

Saleh managed to keep Western and Arab powers on his side, styling himself as a key ally of the United States in its war on terrorism. He received tens of millions of dollars in U.S. military aid for units commanded by his relatives.

After the Sept. 11, 2001 attacks against U.S. cities, Yemen came onto Washington’s radar as a source of foot soldiers for Osama bin Laden’s al Qaeda network. Bin Laden was born in Saudi Arabia though his family came from Yemen’s Hadramaut region.

Saleh cooperated with U.S. authorities as the CIA stepped up a campaign of drone strikes against key al Qaeda figures, which also led to scores of civilian deaths.

Born in 1942 near Sanaa, he received only limited education before joining the military as a non-commissioned officer.

His first break came when President Ahmed al-Ghashmi, who came from the same Hashed tribe as Saleh, appointed him military governor of Taiz, North Yemen’s second city. When Ghashmi was killed by a bomb in 1978, Saleh replaced him.

In 1990, the collapse of the Soviet Union helped propel North Yemen under Saleh and the socialist South Yemen state into a unification.

Saleh angered Gulf Arab allies by staying close to Saddam Hussein during the 1990-91 Iraqi occupation of Kuwait, leading to the expulsion of up to 1 million Yemenis from Saudi Arabia.

But he then won plaudits from Western powers for carrying out economic reforms drawn up by the International Monetary Fund and World Bank, and made efforts to attract foreign investors.

He swept to victory when southerners tried to secede from united Yemen in 1994 and drew closer to Saudi Arabia, which he allowed to spread its radical Wahhabi form of Sunni Islam.

Saleh’s son, Ahmed Ali, lives under house arrest in the United Arab Emirates, where he once served as ambassador before it joined ally Saudi Arabia to make war on the Houthi-Saleh alliance.

Ahmed Ali, a powerful former military commander whom his father appeared to be grooming to succeed him, may the family’s last chance to win back influence.

(Writing by Noah Browning and Michael Georgy; editing by Mark Heinrich)

Bitcoin, an ‘Uber’ currency, not without risk

November 26, 2017

AFP

© AFP/File / by Antonio RODRIGUEZ | With the price of the cryptocurrency bitcoin soaring above $8,000 it isn’t the gold plating that makes these coins so valuable.

PARIS (AFP) –  Bitcoin, which this week soared to a new record high of more than $8,000, is the monetary equivalent of Uber, since it bypasses central bank regulation and could be attractive for financially fragile countries, economists say.Nevertheless, it is precisely the lack of oversight that opens up the users of cryptocurrencies such as bitcoin to risks and dangers, analysts warn.

“Bitcoin? It’s about ‘Uber-ising’ currency, about not having a central bank that decides the price,” said Ludovic Subran, chief economist at credit insurer Euler Hermes, referring to Uber, the ride-hailing app that has set the cat among the pigeons in the taxi sector in recent years.

“Yes, it’s exactly that: it bypasses a central regulatory authority. That’s the genius of this invention,” agreed Yves Choueifaty, founder of the Paris-based asset management firm Tobam, which this week launched the first European fund investing in bitcoin.

Bitcoin is not regulated, but is traded on specialist platforms. It has no legal exchange rate and no central bank backing it. Launched in 2009 as a bit of encrypted software written by someone using the Japanese-sounding name Satoshi Nakamoto, bitcoin is controlled and regulated by its community of users.

Investors are already referring to it as “digital gold”, as the bitcoin soared to a new record high of more than $8,000 this week, a staggering rise in value from just under $1,000 at the beginning of the year.

“We have no need for central banks,” said Yves Choueifaty, suggesting that institutional investors may be behind the recent sharp gains, even if insisted that there was “no bitcoin bubble.”

The growing interest in bitcoin is catching mainstream attention: the CME Group of Chicago, one of the world’s biggest exchanges, has decided to launch a bitcoin futures marketplace. And prestigious US universities are offering courses in blockchain technology, on which cryptocurrencies are based.

– ‘Dollarization 2.0’ –

Virtual currencies could also prove attractive to economic players in countries such as Zimbabwe or Venezuela, whose fiat currencies have been ravaged hyper-inflation. Caracas, for example, has had to issued a new 100,000-bolivar bill, when just a year ago, the biggest-denomination banknote was 100 bolivars.

“Think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country — such as the US dollar — some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0,” said the head of the International Monetary Fund, Christine Lagarde, recently.

Economists also suggest the bitcoin could be of interest to developing countries where individuals often find it easier to access the internet than traditional bank accounts.

Nevertheless, central banks and the big financial institutions are concerned that virtual currencies can be used for illicit purposes and are highly speculative by nature.

“It’s the exact definition of a bubble,” the head of Swiss banking giant Credit Suisse, Tidjane Thiam, warned recently in comments that immediately sparked an uproar on social media among bitcoin’s supporters.

The head of the French central bank or Banque de France, Francois Villeroy de Galhau, warned in the summer: “People are using the bitcoin today are clearly doing it at their own risk and at their own peril.”

– ‘No intrinsic value’ –

Nobel laureate, Jean Tirole, also insisted that the current bitcoin boom was a “bubble”.

“It’s something that has no intrinsic value,” he told AFP on the sidelines of a conference in Paris this week.

“It could collapse from one day to the next. I would be completely against French banks, for example, investing in bitcoin.”

Euler Hermes economist Subran called on the financial authorities to make potential investors more aware of the risks.

“There’s a lot of money to be made. And a lot of money to be lost,” he said.

“We’re seeing more and more people wanting to venture there, but they’re not fully aware of the risk.”

Bitcoin has regularly suffered abrupt falls, for example, in cases of friction between the members of the community who oversee it and the members who produce it, when the regulatory authorities issue any warnings, or if there are data hacks.

But more often than not, bitcoin quickly makes up any losses abd some investors are predicting it will soon top the $10,000 level. Back in 2011, it had struggled to pass $1.

by Antonio RODRIGUEZ

U.S. Rebuffs China’s Charm Offensive, Edging Closer to Trade War

November 20, 2017

U.S. looks at sanctions with the goal of fundamentally challenging Chinese trade practices

The U.S. and China are vying for influence in Asia, but tensions between the U.S. and North Korea, as well as President Donald Trump’s focus on prioritizing American interests, have complicated Washington’s agenda. Photo: AP

A month before President Donald Trump’s visit to Beijing, Chinese officials presented an offer they thought Washington couldn’t refuse.

China proposed that during the trip, Mr. Trump and his counterpart, Xi Jinping, unveil a plan to widen foreign firms’ access to China’s vast financial industry, according to people with knowledge of the matter. It was a move previous U.S. administrations had sought for years.

To Beijing’s consternation, according to the people, Washington wasn’t interested. The offer was made a second time during one of Mr. Trump’s meetings at the Great Hall of the People. Hours after Air Force One took off from Beijing, China announced the opening on its own.

The cold shoulder from the White House reflects a fundamental shift in how the U.S. manages its relationship with China, one that suggests a bold gamble and a rocky road ahead despite the bonhomie of the presidential summit earlier this month in Beijing.

The financial opening initially attracted wide attention from market participants, and Beijing called it evidence of its commitment to market liberalization. U.S. reaction has been tepid. A White House spokeswoman on Friday called it “welcome but long overdue” and said: “It is also only one of a plethora of problems China needs to address in order to provide fair and reciprocal access to its market.”

The Trump administration, which recently completed a comprehensive review of China policy, is rejecting the longstanding practice of eking out concessions from Beijing on trade and market access around high-level meetings.

To Mr. Trump and his aides, that approach has yielded few substantive benefits but allowed China to continue policies that put American businesses at a disadvantage. One White House official refers to that pattern as Beijing’s “rope-a-dope” strategy. The administration is now investigating trade sanctions or enforcement actions against China with the goal of fundamentally challenging Chinese trade practices.

The White House is also trying to invest in the personal relationship between Mr. Trump and Mr. Xi to absorb some of the shock of the coming trade measures.

That helps explain Mr. Trump’s unorthodox blend of tough talk on trade and effusive praise for Mr. Xi in Beijing. In China and around the globe, the White House is aiming to make an asset out of Mr. Trump’s unpredictability, which has been criticized by foreign-policy experts as a destabilizing influence on international negotiations over trade and national security.

Related

A Chinese Conglomerate’s Fall From Favor
China to Give Foreigners Greater Access to Its Financial Sector (Nov. 10)
In China, Trump Employs Tough Talk, Flattery With Xi (Nov. 9)
Decoding Trump’s China Trade Strategy (Nov. 5)
Where Donald Trump’s Unpredictability Could Hurt Him (Oct. 23)
“The U.S. now believes that only the threat of unilateral action will compel China to change,” says Scott Kennedy, a deputy director at the Center for Strategic and International Studies, a Washington think tank.

The new China strategy carries considerable risk. Some policy experts fear it could set off a trade war. Others, especially advocates of harsh sanctions, worry Mr. Trump might not follow through if Beijing steps up its charm offensive with further attempts to flatter him or if his agenda becomes monopolized by domestic issues, especially the tax overhaul proposed by the Republicans in Congress.

Still, in Beijing, the prospect of a much tougher U.S. stance is starting to sink in. China had hoped to show it is doing its part to improve the relationship by granting Mr. Trump a “state-visit-plus”—including a private dinner with Mr. Xi in the Forbidden City—and opening the financial sector.

“China realizes that it can’t continue to drive away foreign capital,” says He Fan, a professor at Peking University HSBC School of Business. “It likely will take more measures to open up its economy.”

Beijing is likely to point to any opening measures, however symbolic, to argue against unilateral action by Washington.

Under the new financial opening, Beijing pledged to let foreign securities firms own majority stakes in their Chinese ventures and to scrap foreign ownership limits on Chinese banks. Officials indicated the security-industry changes would be limited, at least initially.

Western officials treat such pronouncements with skepticism, pointing to China’s poor follow-up record and saying hurdles have grown despite similar pledges in the past.

“This opening-up comes at a late stage in development,” said the European Chamber of Commerce in a statement. “It is now difficult for foreign firms to capitalize on these changes as domestic Chinese firms have stronger positions in their respective industry.”

Such views are shared by U.S. officials. “The overall approach now is not to negotiate over crumbs, not celebrate small deals that will have limited impact,” one official said.

While attending meetings by the International Monetary Fund and the World Bank in Washington in October, China’s Vice Finance minister Zhu Guangyao told U.S. officials about the new financial-opening plan, according to the people familiar with the discussions. The Chinese side had expected U.S. officials would welcome the proposal and agree to roll it out as a breakthrough during Mr. Trump’s visit to Beijing.

Instead, U.S. officials called it too little too late.

“We said, ‘No, we’re not going to take your gifts because you’re just trying to sucker us,’” said a U.S. official familiar with the discussions. “The idea with China is no negotiation because it will just make us beholden to them and reluctant to slam them on other stuff.”

The Trump administration trade team is weighing a half-dozen trade enforcement actions that are aimed directly, or indirectly, at China, with decisions expected by early next year.

The team is looking at invoking a Cold War-era law that was last used in the early 1980s to block steel and aluminum imports in the name of national security. It is also studying dusting off another law last used in 2002 to protect domestic producers claiming to have been damaged by a sudden surge of cheap imports; solar panels and washing machines are goods in focus.

The U.S. and China are vying for influence in Asia, but tensions between the U.S. and North Korea, as well as President Donald Trump’s focus on prioritizing American interests, have complicated Washington’s agenda. Photo: AP

Shortly before Mr. Trump’s trip to Beijing, his Commerce Department issued a lengthy study justifying the continuing branding of China as a “nonmarket economy,” a status that allows the U.S. to impose extra high duties on Chinese imports found to have been illegally subsidized or “dumped” below production costs. Commerce has since imposed duties of up to 162% on Chinese aluminum foil and 194% for hardwood plywood. China has filed a complaint over that designation to the World Trade Organization.

At the same time, Mr. Trump’s trade agency is building a broad case to charge China with “unfair trade practices” by improperly pressuring American companies to turn over valuable intellectual property as the price for entering the Chinese market.

Still, the question is when, or whether, the administration will actually take action on these fronts. So far, trade enforcement has taken a back seat to White House priorities such as winning passage of a tax cut and securing Chinese cooperation to curb North Korea’s nuclear program.

U.S. officials have struggled to find remedies that won’t trigger a wide backlash from industries that consume Chinese products or free-trade Republicans in Congress. Excessively harsh sanctions could also provoke a full-blown trade war, some policy experts say.

Although an open line to Mr. Xi could help in managing a trade crisis and allow for more meaningful deal-making, efforts to forge a personal rapport with previous Chinese leaders have rarely borne fruit.

“The development of personal relations is a fact, not a strategy,” the White House spokeswoman said. Messrs. Trump and Xi “seem to have established a good personal relationship, as the president has with many world leaders,” she added.

Already, some supporters of Mr. Trump’s promised China trade crackdown have grown frustrated at the limited results. The Alliance for American Manufacturing, a group formed by the United Steelworkers union and U.S. steelmakers, praised Mr. Trump in April when he launched his study on national-security steel tariffs, and his aides had promised action by June.

Now, they have launched a petition drive protesting the delays and demanding the administration follow through.

The deadline “is long past — and still no action,” the petition reads. “President Trump pledged to stand up for America’s working class—and it’s time for him to make good on his word.”

Asked Tuesday at The Wall Street Journal CEO Council about the delays, Commerce Secretary Wilbur Ross said: “Well, the president has indicated that he doesn’t want that to come out until after the tax legislation is dealt with.”

Write to Lingling Wei at lingling.wei@wsj.com, Jacob M. Schlesinger at jacob.schlesinger@wsj.com, Jeremy Page at jeremy.page@wsj.com and Michael C. Bender at Mike.Bender@wsj.com

Gulf crisis: IMF warns of weakened medium-term growth

November 1, 2017

Al Jazeera

The IMF expects a 3.1 percent GDP growth for Qatar in 2018 compared to 2.5 percent in 2017 [File: AFP]
The IMF expects a 3.1 percent GDP growth for Qatar in 2018 compared to 2.5 percent in 2017 [File: AFP]

The International Monetary Fund (IMF) has warned longer term economic growth could weaken in the Gulf region if a months-long diplomatic crisis remains unresolved.

In a report published on Tuesday, the global financial institution said that while the rift has a “limited impact” on current growth, Qatar and its blockading neighbours face a “broader erosion of confidence” from investors.

READ MORE

US treasury secretary praises cooperation with Qatar

“A protracted rift could slow progress toward greater GCC integration, and cause a broader erosion of confidence, reducing investment and growth and increasing funding costs in Qatar and possibly the rest of the GCC,” the IMF warned in its Regional Economic Outlook.

On June 5, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut ties with Qatar and imposed a land, sea and air embargo, accusing it of supporting “terrorism”. Doha has strongly denied the allegation.

As a result of the blockade, business and financial activities were initially interrupted, not only in Qatar but also its neighbouring countries.

In its report, the IMF said Qatar’s sovereign credit rating and outlook was downgraded, raising interbank interest rates. Private sector deposits among citizens and other residents also declined, the institution added.

According to a Moody’s Investors Service report, from June to July this year, an estimated $30bn were withdrawn from Qatar’s banking system.

Moody’s also estimated that Qatar used $38.5bn of its reserve to support the economy.

Market adjustments

But the situation has since stabilised, and Qatar’s “economy and financial markets are adjusting to the impact of the diplomatic rift”, the IMF said.

Food supplies and other imports from Saudi Arabia have also been replenished with shipment from Turkey, Iran and elsewhere.

In the more than four months of the blockade, Turkish exports to Qatar have also jumped by 90 percent to $216m, according to a report by the Aegean Exporter’s Association.

Qatar’s central bank have also injected liquidity into the banks, and public sector deposits have also increased, said the IMF report.

Qatar’s main exports of oil and gas have not been interrupted, including large volumes of gas supplied to Oman and the UAE, the report added.

The initial concern that “trade disruptions could affect the implementation of key infrastructure projects”, particularly ahead of Qatar hosting the 2022 World Cup, has also been “mitigated”, by the availability of an inventory of construction materials and of alternative, and competitive, sources of imports, IMF said.

Kuwait has tried to mediate the Gulf Cooperation Council (GCC) crisis, as has the US, which has a major military base in Qatar. But so far, diplomatic efforts have been stalled.

Qatar’s Emir Sheikh Tamim bin Hamad Al Thani  has recently said he will not bow to pressure from the blockading countries, calling the independence and sovereignty of the Gulf nation a “red line”.

“Our sovereignty is a red line. We don’t accept anybody interfering our sovereignty,” Sheikh Tamim told US television programme 60 Minutes.

He also accused blockading countries of seeking to force a change of leadership in Qatar.

“History as well tells us, teaches us, they tried to do that before, in 1996 after my father became the emir.”

Sheikh Tamim also expressed his willingness to join a meeting with other GCC leaders, including at Camp David as suggested by US President Donald Trump to resolve the crisis.

But Bahrain’s King Hamad bin Isa Al Khalifa said his country will not take part in any meeting attended by Qatar, unless Doha “corrects its approach”.

In recent days, Bahrain’s Foreign Minister Khalid al-Khalifa also called for the suspension of Qatar from the GCC.

SOURCE: AL JAZEERA NEWS

http://www.aljazeera.com/news/2017/10/gulf-crisis-imf-warns-weakened-medium-term-growth-171031174540944.html

IMF tells Gulf states to speed up switch from oil

October 31, 2017

AFP

© AFP/File / by Omar Hasan | Oil exporters in the Middle East, especially those in the Gulf Cooperation Council, have been hit hard by the collapse in crude prices which provided a major part of their finances

DUBAI (AFP) – The IMF on Tuesday advised energy-rich Gulf economies to speed up their diversification away from oil after projecting the worst growth for the region since the global financial crisis.Oil exporters in the Middle East, especially those in the Gulf Cooperation Council, have been hit hard by the collapse in crude prices which provided a major part of their finances.

Following the slump, GCC members Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates undertook fiscal measures and reforms to cut public spending and boost non-oil revenues.

As a result, economic growth has slowed considerably as the GCC six and other regional oil exporters posted huge budget deficits.

In its Regional Economic Outlook, the International Monetary Fund on Tuesday projected GCC economic growth at just 0.5 percent this year, the worst since the 0.3 percent growth in 2009 following the global financial crisis.

“It is the right time for GCC economies to accelerate their diversification outside oil and to promote a greater role for the private sector to lead growth and create additional jobs,” said Jihad Azour, director of the Middle East and Central Asia at IMF.

“Preparing their economies to the post-oil era is something that is becoming a priority for authorities all over the GCC,” Azour told AFP.

“We are seeing governments developing diversification strategies and introducing a certain number of reforms to allow the economy to be prepared for the post-oil era. And those are important reforms,” he said.

– Non-oil sector on rise –

Azour said the GCC growth projections are mainly driven by the oil producers deal to cut output to bolster low crude prices which meant GCC states pumped and exported less oil.

The IMF report also projected that the economies of oil exporters in the Middle East and North Africa — also including Iran, Iraq, Algeria, Libya and Yemen — would grow 1.7 percent, down from 5.6 percent the previous year.

MENA oil importers, on the contrary, were expected to expand 4.3 percent this year, up from 3.6 percent in 2016, the report added.

Azour said the IMF was projecting flat growth this year for Saudi Arabia, the largest economy in the MENA region, but the non-oil sector was growing faster than expected.

This was an indication “that the Saudi economy is bottoming up and it shows that the gradual implementation of the fiscal adjustment now is going to allow the Saudi economy to grow faster,” Azour said.

He estimated that Saudi Arabia and UAE could achieve a fiscal balance by between 2020 and 2022.

Azour said the introduction of the five percent value-added tax (VAT) was one of the reform measures that would allow the GCC countries to diversify their revenues away from oil.

“Its low rate will have a limited impact on price rise and inflation,” said Azour, adding that VAT is estimated to generate between 1.5 and two percent of gross domestic product annually.

So far, Saudi Arabia and UAE have said they would apply the tax at the start of next year while the remaining four nations have the whole of 2018 to implement it.

by Omar Hasan

CPEC to benefit China more than Pakistan

October 29, 2017

ANI | Oct 29, 2017, 13:18 IST

HIGHLIGHTS

  • According to the news report, Chinese banks are keenly waiting to get their share of the pie, holding more than $20 billion for potential financing.
  • The report said that Islamabad will be left paying interest on loans to Chinese banks way into the future.
  • Pakistan’s banks will have minimal opportunities for direct financing in CPEC projects as the private sector at the govt level is not so

(File photo for representation)

(File photo for representation)

BEJING: The multibillion-dollar China Pakistan Economic Corridor (CPEC), which is part of Chinese President Xi Jinping‘s ‘Belt and Road Initiative’, will benefit China more than Pakistan due to lack of Pakistani input in the project.

The lack of Pakistani input into the CPEC, which the government said would drive economic growth to a targeted 6% this financial year, adds to concerns that its benefits might not be as widely distributed as initially thought, the South Morning China Post reported, adding that it runs the risk that Islamabad will be left paying interest on loans to Chinese banks way into the future.

According to the news report, Chinese banks are keenly waiting to get their share of the pie, holding more than $20 billion for potential financing, much of it has already been filled by the Chinese, with Pakistani lenders getting little look in.

“As of now around US$6 billion to $7 billion worth of projects are likely going on. Out of that, 10%, or around Rs 50 billion ($470 million), can be local financing,” the South Morning China Post quoted Saad Hashemy, research director at Karachi brokerage Topline Securities, as saying.

“It seems the lion’s share of CPEC financing will come from China itself,” Bilal Khan, a senior economist at Standard Chartered, said.

The Thar coal mine worth $3.5 billion, which is expected to generate 1.3 gigawatts of electricity, is one of the most expensive energy projects.

China will also spend $5.5 billion for a significant upgrade of Pakistan’s rail system.

Meanwhile, local lenders, both Islamic and conventional, are keen to deploy funds after parking much of their advances in government securities, holding 82% of the total 9.26 trillion rupees of local securities, the report said.

Pakistan’s banks will have minimal opportunities for direct financing in CPEC projects as the private sector at the government level is not so much involved in the project.

When the CPEC was announced few years back, it was anticipated that the project would mostly be funded with Chinese money as Pakistan was not in a position to deploy the necessary capital after taking an International Monetary Fund bailout in 2013.

National leader of the government affair unit of Deloitte Norman Sze has said that the financing demand for the project has since increased from more than $40 billion in 2015 to $62 billion this year, and most of the funding so far has come from Chinese banks.
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He added that the finance sector in Pakistan is not very advanced and mature to participate in the projects, but it would be difficult for them to meet such a huge financing demand.
However, China has faced criticism for its decision to import goods and labour for the projects at the expense of the local market.
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https://timesofindia.indiatimes.com/world/china/cpec-to-benefit-china-more-than-pakistan-report/articleshow/61318206.cms
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China's Infrastructure Boom In Pak May Have Fewer Benefits Than Thought

Many bankers are eager to finance Chinese projects in Pakistan.

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China’s Infrastructure Boom In Pak May Have Fewer Benefits Than Thought
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Xi Jinping’s multi-billion dollar economic corridor, part of his ‘Belt and Road’ initiative, has been viewed as a game-changer for Pakistan. Yet while local banks are keenly waiting to get their share of the pie, holding more than $20 billion for potential financing, much of it has already been filled by the Chinese with Pakistani lenders getting little look in.
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China’s ambitious $55 billion infrastructure project that’s underway throughout Pakistan is in danger of becoming a non-event for the South Asian nation’s banks.

President Xi Jinping’s multi-billion dollar economic corridor, part of his ‘Belt and Road’ initiative, has been viewed as a game-changer for Pakistan. Yet while local banks are keenly waiting to get their share of the pie, holding more than $20 billion for potential financing, much of it has already been filled by the Chinese with Pakistani lenders getting little look in.

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 So far local funding only amounts to about $474 million, according to Saad Hashemy, research director at Karachi brokerage Topline Securities. “As of now around $6 billion to $7 billion worth of projects are likely going on,” Hashemy said. “Out of that 10 percent, or around 50 billion rupees, can be local financing.”

The lack of Pakistani input into the China-Pakistan Economic Corridor, which the government says will drive economic growth to a targeted 6 percent this fiscal year, adds to concerns that its benefits may not be as widely distributed as initially thought. It runs the risk that Pakistan will be left paying interest on loans to Chinese banks way into the future.

“It seems the lion’s share of CPEC financing will come from China itself,” said Bilal Khan, a senior economist at Standard Chartered Plc.

At $3.5 billion, the Thar coal mine is one of the most expensive energy projects China is financing in Pakistan and is expected to generate 1.3 gigawatts of electricity in coal-fired power stations. China has also agreed to lend $5.5 billion for a significant upgrade of the nation’s rail system.

Minimal Opportunities

Bankers including Standard Chartered’s Chief Executive Officer Bill Winters, who visited Pakistan in March, are eager to finance Chinese projects. Meanwhile, local lenders, both Islamic and conventional, are keen to deploy funds after parking much of their advances in government securities, holding 82 percent of the total 9.26 trillion rupees of local securities.

Shaukat Tarin, a former finance minister and an adviser to  Silkbank Ltd., said conventional Pakistan lenders could lend as much as 1.7 trillion rupees to the projects. Islamic banks are also holding surplus liquidity of about 500 billion rupees, according to Ahmed Ali Siddiqui, head of product development at Meezan Bank Ltd., the nation’s largest Sharia-compliant bank.

“They have that surplus liquidity and need such avenues,” said Tarin. “The question is how much are we involving the private sector at the government level in it, let alone the local banks? We aren’t.”
It means Pakistan’s banks will have minimal opportunities for direct financing in CPEC projects, said Amreen Soorani, a senior analyst at Karachi-based JS Global Capital Ltd.

Still, Pakistan’s central bank Governor Tariq Bajwa is positive about its impact. “As a developing country, do we have the space within our budget or would we have to borrow?” Bajwa said in an interview in Washington earlier this month. “I think if you want to jump the curve you have to borrow and here is money that has been made available to us.”

Funding Powerhouse

When the project was announced in Islamabad two years ago by Xi and Pakistan’s then-Prime Minister Nawaz Sharif, it was anticipated it would mostly be funded with Chinese money. Pakistan wasn’t in a position to deploy the necessary capital after taking an International Monetary Fund bailout in 2013.

The Industrial and Commercial Bank of China — the nation’s biggest lender — signed deals worth over $4.5 billion in 2015. Meanwhile, the China Development Bank is providing $7.9 billion, according to a report by the state-run China News Service on Tuesday, and Bank of China said it has lent more than $80 billion as of the end of June.

The financing demand has since increased from over $40 billion in 2015 to $62 billion in 2017, and the majority of funding so far has come from Chinese banks, said Norman Sze, national leader of the government affair unit of Deloitte China. “The finance sector in Pakistan is not very advanced and mature,” Sze said. “They could participate into the projects, but it would be difficult for them to meet such a huge financing demand.”

There’s also been criticism over China’s decision to import goods and labor for the projects at the expense of the local market, using a similar model to some of its investments in countries across Africa.

“CPEC, if it’s not exports-focused, cannot succeed for Pakistan,” said Mushtaq Khan, chief economist at Bank Alfalah Ltd.

Increasing Ties

In a bid to stem these complaints, Chinese engineers at power plants being constructed along the trade corridor are working side-by-side with Pakistani counterparts who, with their increased expertise, are expected to eventually take the helm.

And while they may not be directly distributing loans for the new infrastructure, Pakistani banks are positioning themselves to service demand for credit that will flow as economic growth quickens.
For now they are still hopeful and looking to increase ties to China. National Bank of Pakistan is one example — it will open branches in Beijing and Shanghai by mid-2018 and is looking to finance agriculture and export projects around the trade corridor.

“We are all set for infrastructure financing,” said Saeed Ahmad, chief executive officer of National Bank over the phone from Karachi. “Local businessmen should get the opportunity, so not only Chinese investors” benefit from CPEC.

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Qatar Makes Sudden Accounting Change Ahead of Bond Sale

October 22, 2017
An abrupt accounting change that nearly doubled Qatar’s hard currency assets is drawing investor scrutiny as the nation prepares for a major bond sale.
Image result for qatar photos

By Matt Wirz
The Wall Street Journal
Oct. 21, 2017 8:00 a.m. ET

An abrupt accounting change that nearly doubled Qatar’s hard currency assets this month is drawing investor scrutiny as the nation prepares for a major bond sale.

Qatar’s central bank said it made the shift based on 2016 technical guidance from the International Monetary Fund. Senior IMF officials were surprised when the Middle East nation implemented the change almost a year later with no warning but a six-word announcement, according to people familiar with the matter.

The confusion comes as Qatar is scrambling to shore up its finances after Saudi Arabia and other Middle Eastern nations imposed an economic blockade on the country in June. The embargo was in retaliation for Qatar’s ties with Iran and its alleged support of extremism.

While the accounting change conforms with IMF protocols, Qatar’s central bank made no mention of the impending change when it met with fund officials in August, and the IMF didn’t review the calculations before they were announced, the people familiar with the matter said.

How investors perceive this maneuver could affect the price they are willing to pay for Qatar’s new debt, expected to reach the market by year-end. Stated foreign currency reserves are key for investors purchasing bonds of most governments and help determine how high a yield buyers demand.

Despite the boost to stated assets, Qatari bond yields have risen since the change was announced, reflecting the stress Qatar’s economy has endured under the blockade.

“This may be a buying opportunity,” said Markus Schneider, a London-based economist for asset management firm AllianceBernstein Holding LP. He said that the country’s other assets help mitigate any concerns about its reserves and that any new Qatari bond likely will yield more than those of other high-quality sovereign borrowers in the region.

Qatari bond yields are still relatively low for an emerging-market country, reflecting the country’s vast oil reserves and attendant wealth. The country also owns large foreign currency assets via its sovereign-wealth fund, the Qatar Investment Authority, and Moody’s Investors Service estimates governmental financial assets at $340 billion.

But the yield of Qatar’s benchmark bond due 2026 has jumped to 3.54% from around 3.1% in May, while the cost of insuring its bonds against default has climbed by 70%, according to data from IHS Markit . Bond yields and the cost of credit default swaps rise when bond prices fall.

Saudi Arabia’s comparable bond traded recently at a yield of 3.4%, compared with 3.38% in June, while the cost of credit default swaps on the bond has dropped about 9%, according to Markit.

Cash Cushion / Qatar Central Bank changed its calculation of assets after the imposition of a Saudi blockade.Source: Qatar Central Bank

Before the blockade, Qatar calculated hard-currency reserves by adding up its gold, cash in foreign banks and holdings of foreign securities, principally U.S. Treasurys. That sum fell by about 44% to $20 billion in August from $35 billion in May, as the central bank liquidated most of its foreign securities holdings to bolster the Qatari banking system.

In September, the central bank published a new set of figures that included a different category titled “other liquid assets in foreign currency” and added foreign currency liquidity to its presentation of reserves. The new assets amounted to $19 billion in August, boosting the total figure reported to investors to $39 billion for that month.

The central bank explained in a footnote to its most recent financial report that it made the change to implement recommendation from IMF technical advisers in November to improve data dissemination. IMF guidelines allow for mention of other liquid assets.

Qatar didn’t discuss the matter with IMF officials during their staff mission to Doha in August, and the accounting revision caught the fund and investors by surprise, the people familiar with the matter said.

Qatar’s finance minister met with bond fund managers in London on Wednesday to highlight measures taken to strengthen the country’s finances and addressed questions about the accounting change during his presentation, people in attendance said. The central bank and the QIA have bolstered the domestic banking system by shifting billions of dollars of foreign currency into deposits with local banks, they said.

—Nicolas Parasie contributed to this article.

Write to Matt Wirz at matthieu.wirz@wsj.com

https://www.wsj.com/articles/qatar-makes-sudden-accounting-change-ahead-of-bond-sale-1508587201

Ukraine leader vows to launch anti-corruption court

October 20, 2017

AFP

© AFP/File | Protesters have put pressure on Ukrainian President Petro Poroshenko to take anti-corruption measures, holding rallies in front of the parliament in Kiev

KIEV (AFP) – Ukrainian President Petro Poroshenko vowed on Friday to launch an anti-corruption court demanded by Kiev’s Western lenders and protesters camped out in a tent city near parliament.Poroshenko’s firmest commitment yet to a new judiciary body — aimed at fighting endemic state graft — comes against the backdrop of the first sustained wave of anti-government protests since Ukraine’s 2014 pro-EU revolution.

The Ukrainian leader left Kiev on Friday to meet soldiers and reaffirm his support for institutional changes he had originally promised when elected president in place of the Russian-backed regime of Viktor Yanukovych.

Poroshenko said that next year’s draft budget — yet to be approved by parliament — already earmarks money for an anti-corruption court.

“This testifies to the state leadership’s firm commitment to launching this vitally important judicial body next year,” Poroshenko said.

“The way I see and plan it, the timeline for the new court’s creation foresees the president’s signature on an anti-corruption law by the end of the year,” Poroshenko said.

“This is completely feasible.”

There was no immediate response to Poroshenko’s promise from Ukraine’s creditors at the International Monetary Fund (IMF) or protest leaders in Kiev.

Poroshenko’s critics and some Western economists have accused the Ukrainian leader of deliberately dragging his feet over the creation of an anti-corruption court in order to preserve the current political order.

Nearly 5,000 protesters rallied outside parliament on Tuesday demanding the court’s immediate introduction and the passage of a bill that would strip members of parliament of their immunity from prosecution.

The IMF has called the court’s launch a “benchmark” of Ukraine’s progress toward Western standards that would help ease the release of future loans.

Ukraine ranked 131st out of 176 countries assessed by Transparency International’s corruption perception index in 2016.

Spanish government and the IMF issuing dire warnings about Catalonia’s move toward independence

October 14, 2017
Catalan separatists continue their push for independence despite the Spanish government and the IMF issuing dire warnings about the nation’s finances.
Source: 

AFP – SBS Wires
October 13, 2017

The International Monetary Fund and the Spanish government warned Friday the country’s economic growth could be dealt a blow if Catalonia’s drive to break away persists, just as the Catalan leader’s separatist allies pressed him to go ahead with independence.

The central government has given Carles Puigdemont until next Thursday to abandon Catalonia’s push for secession, failing which it may trigger unprecedented constitutional steps that could see Madrid take control of the semi-autonomous region.

Puigdemont’s separatist allies pressed him Friday to defy Madrid and declare independence.

But with dozens of companies having already moved their legal headquarters from Catalonia, concerns are rising that growth in the region could take a hit, and by extension that of Spain as a whole.

In Washington, IMF Europe Director Poul Thomsen said: “If there was prolonged uncertainty, that could weigh on growth, and obviously we want to avoid that.”

Spain’s deputy prime minister Soraya Saenz de Santamaria warned that if “there is no quick solution, we see ourselves having to lower economic forecasts for 2018”.

Spain issues Catalonia a deadline to clarify independence claim

‘Domino effect’

She accused Puigdemont of “seriously damaging Catalonia’s economic stability” as uncertainty over the fate of the region of 7.5 million people damages business confidence.

The eurozone’s fourth largest economy said in July it expected growth of 2.6 percent next year.

Spain’s Association of Registrars said Friday that 540 firms had sought to relocate their legal addresses from Catalonia from October 2-11.

Ratings agency Standard and Poor’s said the region’s economy risked sliding into recession if the crisis dragged on.

European Commission President Jean-Claude Juncker said Friday he was against Catalan independence because it could trigger a separatist domino effect in the EU.

“I wouldn’t like to have a European Union which consists of 98 states in 15 years’ time,” he said during a speech in Luxembourg. “It’s already relatively difficult at 28, no easier at 27 (after Britain leaves), but at 98, that seems impossible.”

The Mobile World Congress, the phone industry’s largest annual trade fair held every year in Barcelona, said it would hold its 2018 in February as planned, after media reports suggested it was considering delaying.

A spokeswoman told AFP “we are continuing to monitor developments in Spain and Catalonia and assess any potential impact.”

Meanwhile Spain’s CEOE business lobby group said this week that Catalonia was already “seriously affected” by the crisis.

Ricardo Mur, vice-president of the Aragon Business Confederation said the region, which borders Catalonia, had seen a surge in activity.

“Industrial estates are almost full due to the transfer of Catalan businesses,” he told AFP.

Catalonia’s separatist push has ended

Pressure to break away

But Puigdemont is also under pressure from his separatist allies who feel that any decision to back down would infuriate hundreds of thousands of Catalans who voted to split from Spain in a banned referendum.

On Friday, the far-left CUP party, an ally of his coalition government, said in an open letter that “only by proclaiming a republic will we be able to respect what the majority expressed in the polls.”

The referendum took place on October 1 despite a court ban that ruled it unconstitutional, and regional authorities say 90 percent chose to split from Spain in a vote marred by police violence.

Turnout was 43 percent, they say, but the figures are impossible to verify as the referendum was not held according to official electoral standards.

Adding to pressure, Catalonia is deeply divided over independence, and those who want to stay in Spain are increasingly making their voices heard, having staged two mass rallies in just five days.

Puigdemont had pledged to declare independence if the “yes” vote won, but on Tuesday he gave an ambiguous statement.

Saying he accepted a mandate for “Catalonia to become an independent state,” he immediately suspended the declaration, calling for more time for talks with Madrid.

Prime Minister Mariano Rajoy retorted that Puigdemont had until next Monday to clarify whether or not he would press ahead with secession and then until next Thursday to reconsider, otherwise Madrid would act. He rejected any form of mediation.

Apart from the CUP’s open letter, the Catalan National Assembly, an influential pro-independence association whose followers are ready to take to the streets, also called on him to lift his suspension of the independence declaration.

http://www.sbs.com.au/news/article/2017/10/14/spains-warning-economic-growth-catalan-crisis-persists