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Around The Financial World On A Saturday

Posted on Sep 26, 2020. by NTI

Autumn is here and there’s a definite chill in the air. We now await the cold, when our bodies close down warmth to extremities, focusing on keeping the vital areas alive. That’s the way the last six months have been. We have been focusing so hard on local survival that, apart from some people being desperate to be anywhere but the UK and somewhere near a sunny beach, we have lost a world perspective. At the NTI newsroom we are dealing with that this fine Saturday morning (26 September) with a mini-cruise around the globe.

India is home to Earth’s second largest population, of 1.35 billion souls, just edged by China’s 1.42 billion. It does not even have the greatest density of population (measured by number of human beings crammed into a square kilometre). That title belongs to ... Monaco, at 26,153 people levered into every one kilometre by one kilometre square on the Mediterranean grid. However, the sheer enormity of almost every figure associated with India brings particular challenges for both local and national government. Those challenges include corruption, collection of taxes and a wide disparity between rich and poor, men and women.

Small businesses in India are having to face mounting pressure to repay huge amounts of debt, despite not functioning in the past six months. The Reserve Bank of India gave borrowers a six-month freeze on their loan repayments, which ended on 31 August, with about a third of India’s $1.8 trillion outstanding loans being deferred under the programme. 

6,000 km away in Japan 36,000 companies have chosen to discontinue their business so far this year, up sharply from a year ago in a sign of the pain the pandemic is inflicting on the fragile economy.

Some in the country have responded to their current financial issues by adopting the ancient self-accounting system of ‘kakeibo’ (translating literally as ‘household accounting ledger’). It doesn't involve any budgeting software, apps or Excel sheets. Similar to bullet journalling, it emphasises the importance of physically writing things down, as a meditative way to process and observe spending habits.

The total number of companies closing businesses in Japan, without going through Bankruptcy procedures, may top 53,000 by year-end. The number of companies that discontinued business stood at 35,816 from January to August, up 23.9 per cent from the same period of the previous year, making up roughly 1 per cent of the 3.58 million firms in Japan.

Moving south-west to Australia there is a central bid to help companies through the crisis. After 30 consecutive years of financial growth there had been underlying issues on the planet’s largest island, and the country’s economy was already weak going into the period of pandemic. Now, though, it has been hit for the kind of six its cricketers dream of against the Poms.

Under proposed rule changes, businesses with liabilities of less than A$1 million (£850,000) will be able to keep operating while they come up with a debt restructuring plan, rather than be placed in the hands of Administrators. The changes aim to move the system from a rigid, one-size-fits-all creditor in possession model to a more flexible debtor in possession model. These are the most significant reforms to Australia’s insolvency framework in almost 30 years.

In the land of tequila and the Mariachi, Mexico, the 12th most populous country on Earth, measures to shore up businesses, both local and national, are being extended into 2021. Like most other world economies, temporary rules designed to avoid defaults and loss of collateral, are being stretched into next year in what Finance Minister Arturo said was a recognition that the economy will remain fragile for some time. “It’s no longer a horizon of a few weeks,” said Herrera, “but a few months.” The steps include relaxing liquidity requirements until March 2021, extending a capital buffer through the end of next year, and an 18-month relief for farming credits.

Just over a century ago, the United States and Argentina were economic rivals and Government decision-making was key to the way the mainly agrarian countries would develop.  For Argentina there was a ‘lost decade’ of stagnation and strife from the mid-eighties. Hyper­inflation wiped out the value of lifetime savings in a few months.

Osvaldo Soriano, an Argentine author, writing in 1989, noted that during the time it took him to type the piece, the price of the cigarette that he was smoking went from 11 to 14 australes (a new currency that lasted a matter of weeks).

Less than a month after Argentina’s £80 billion debt restructuring, bond prices show growing concern the government may struggle to pay its obligations. The country’s yield curve has inverted in the week since officials announced foreign-exchange restrictions to help conserve cash. Investors perceived the move as an act of desperation instead of a workable solution to stem the drain in foreign reserves, and prices for short-term bonds dropped.

Angst is growing just three weeks after creditors reached a deal to cut interest rates and push back maturities, with the promise that the restructuring would stabilise Argentina’s finances after the country’s third default of the past 20 years.

 

 

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