Who's Next? Venezuela's Collapse Puts These Nations At Risk

"It's a wake-up call for a lot of people who will say ‘Look, the stuff I own is actually very risky'..." warns Ray Jian, who oversees about $6 billion at Pioneer Investment Management Ltd. in London. "People have been ignoring risks in places like Lebanon for a long time," and the official default of Venezuela this week has emerging-market money managers are looking to identify countries that might run into trouble down the road.

While Bloomberg reports that while none are nearly as badly off as Venezuela - where a combination of low oil prices, economic mismanagement and U.S. sanctions did the country intraders are scouting for credit risk, from Lebanon, where Prime Minister Saad Hariri’s sudden resignation has once again thrust the nation into a Saudi-Iran proxy war, to Ecuador, where recently elected President Lenin Moreno continues to expand the debt load in a country with a history as a serial defaulter.

1. Lebanon:

One of the world’s most indebted countries, Lebanon may hit a debt-to-gross domestic product ratio of 152 percent this year, according to International Monetary Fund forecasts. That’s coming at a time when political tension is rising. Hariri’s abrupt resignation, announced from Riyadh on Nov. 4, triggered about $800 million of withdrawals from the country as investors speculated that the nation would be in the crosshairs of a regional feud between the Saudis and Iranians. While the central bank says the worst may be over, credit-default swaps have hit a nine-year high.

2. Ecuador:

After a borrowing spree, the Andean nation’s external debt obligations over the next 12 months ballooned to a nine-year high relative to the size of its GDP. Ecuador probably has the highest default risk after Venezuela, according to Robert Koenigsberger, the chief investment officer of Gramercy Funds Management. The country will be vulnerable “when the liquidity environment changes and they can no longer go to the market to get $2.5 billion to plug the hole," he said. Finance Minister Carlos de la Torre told Bloomberg in an email on Thursday that there is "no default risk" for any of Ecuador’s debt commitments and the nation’s indebtedness is nowhere near "critical" levels.

3. Ukraine:

While the Eastern European nation’s credit-default swaps have declined from their 2015 highs, persistent economic struggles are giving traders reason for caution. GDP expansion has slowed for three consecutive quarters and the World Bank warns that the economy is at risk of falling into a low-growth trap. Ukraine’s parliament approved next year’s budget on Tuesday as it eyes a $17.5 billion international bailout.

4. Egypt:

Egypt’s credit-default swaps are hovering near the highest since September. The cost for protection surged in June as regional tensions heated up amid a push by the Saudis to isolate Qatar. While Egypt has been able to boost foreign-currency reserves and is on course to repay $14 billion in principal and interest in 2018, its foreign debt has climbed to $79 billion from $55.8 billion a year earlier.

5. Pakistan:

Pakistan’s credit-default swaps surged in late October and linger near their highest level since June. South Asia’s second-largest economy faces challenges as it struggles with dwindling foreign reserves, rising debt payments and a ballooning current account deficit. Pakistan is mulling a potential $2 billion debt sale later this year. Speaking at the Bloomberg Pakistan Economic Forum last week, central bank Deputy Governor Jameel Ahmad played down concerns over the country’s widening twin deficits.

6. Bahrain:

Bahrain’s spread rose dramatically in late October to the highest since January after it was said to ask Gulf allies for aid. The nation is seeking to replenish international reserves and avert a currency devaluation as oil prices batter the six Gulf Cooperation Council oil producers. Although its neighbors are likely to help, Bahrain could still be left with the highest budget deficit in the region, according to the IMF.

7. Turkey:

Despite high yields, investors are still reluctant to buy Turkish bonds. The nation has been caught up in a blur of political crises, driving spreads on credit-default swaps to their highest level since May. Turkey was the only holdover on S&P Global Ratings’s latest “Fragile Five” list of countries most vulnerable to normalization in global monetary conditions.


haruspicio Sat, 11/18/2017 - 20:18 Permalink

What is needed is these countries to get together.....maybe 5 or 6 large debtor countries, the more the merrier....and do a coordinated default. Access to credit markets will return quickly as greedy feral bankers will lack countries to loan money to. Yes taxpayers in US, UK, France and Germany will have to bail their banks out, and economies will be in turmoil, but what fun it would be.

Porous Horace Sat, 11/18/2017 - 20:25 Permalink

Once the baby boomers have all retired, and Social Security and Medicare costs double (we won't even get into all the underfunded local and state government pension plans), the US is next.

Endgame Napoleon Porous Horace Sun, 11/19/2017 - 11:26 Permalink

While the employed pay 7.5% in SS tax on every penny made, no matter how meager their wages, and while the self employed pay 15.5% in SS tax on all of their income, even if they are grossing $90k while netting only $30k, we have a lot of people in the USA only paying SS tax on up to $127,200 in income.

Take the dual, high-earner couples who are currently enjoying one of their many generous babyvacations, the pre-Thanksgiving week / week-long babyvacation for busy-working parents, followed by the Thanksgiving week babyvacation. These households feature a mom, making say $10,000 per MONTH in salaried income that is only taxed at the 7.5% rate and a dad, making the same or more in salaried income, taxed at the lower SS rate and only up to the SS cap.

We also have business wunderkind, like the Aetna CEO who made $300 million in just one year, managing a health insurance company in a country so inept in that area that 27 million of its citizens are uninsured, and life expectancy rates are falling.

Merit based. Merit-based. Merit based.

Although such people are unquestionably ”the talent” and richly deserving of the $300k yearly income, they can be taxed beyond the SS cap, which represents a tiny portion of their yearly income.

They can be taxed, just like the small Main Street shops with all of their overhead, who are taxed on all their income, taking what is a huge chunk of a modest net income in just SS tax.

They can be taxed like the little 1099 contractors who pay 15.5% on every $200 gig or straight-commission check, including the [licensed] insurance salespeople, netting only $30k with no benefits from the parent company and no guaranteed income, working on straight commission.

Many of the big insurance companies hire a lot of unlicensed temps and a lot of unlicensed mom workers with spousal income or monthly welfare and child tax credits up to $6,269 to work in their corporate offices, paying them between $9 and $12 per hour with benefits, and letting them form absenteeism, back-watching cliques as a consolation for low pay.

Those unlicensed women, with all of their unearned income for womb productivity, pay a lower rate of SS tax — 7.5% — than the people who are charged to maintain licenses, biannually, and who also take an absolute ton of state-required tests to get and maintain the licenses.

The self-employed, licensed 1099 contractors pay 15.5% SS tax, while the unlicensed corporate office employees, with benefits and salaried income, pay only 7.5% in SS tax and do not go through any of that expense or testing. To add to the absurdity, Swamp Congress gives big corporate employers an Employer Tax Exclusion that costs taxpayers $260 billion to provide health insurance benefits to their [employees].

Tax employees like that as much as you tax people in the same industry at similar income levels, working 1099 with no benefits and no access to layers of unearned income from government for womb productivity, like free rent, free EBT groceries, monthly cash assistance and refundable $6,269 child-tax-credit checks.

The frequently absentee mom-gang employees who do not get welfare for reproducing while single often have spouses who provide a second income that enables them to work for low wages, and they are, in effect, double covered, with access to benefits through their spouse’s job. If they were raising their own children instead of taking a job that many are frequently absentee from, twice as many Americans would have benefits through the COSTLY Employer Tax Exclusion.

There are many ways to ensure the solvency of SS, simply by stopping Uncle Sam’s Tax Favoritism Train. The Swamp does not do it because tax favoritism buys them votes.

In reply to by Porous Horace

itstippy Scornd Sat, 11/18/2017 - 22:46 Permalink

Robots consume a lot.  The problem is that they have very discerning tastes.  They're not interested in the stuff that average human schleps have to offer.  They require special steel alloys and premium composit materials.  They demand the attentions of top-notch mechanical, electrical, and computer engineers, hydraulics specialists, and machinists.  Polyester shirts from Bangladesh, cheap plastic trinkets from China, and lifestyle advice from American social sciences majors ain't gonna do it for them.  They want the good stuff.

In reply to by Scornd

currency Sat, 11/18/2017 - 21:18 Permalink

Add to the list US Municipal Debt. A number of cities and towns are in financial trouble and also states such as Illinois.  Also add to the list Puerto Rico, its in default

RationalLuddite beyondtheprogramming Sun, 11/19/2017 - 00:03 Permalink

Agreed. What a moronic article. Yeah - this differential is all that matters. Russia alone is on it's way very soon to debt free status (December next year on current estimates) and is net debt free already with rapidly accumulating reserves and REAL growth. The current oil price will get them there even earlier. Yeah - lucky the US aint there or other Zombie economies that are walking dead. They're in rude health i bet.  The whole premise of the article is extremely misleading on a couple of other countries at least too. Disappointing Tyler.

In reply to by beyondtheprogramming

Conscious Reviver Sun, 11/19/2017 - 06:08 Permalink

"One of the world’s most indebted countries, Lebanon may hit a debt-to-gross domestic product ratio of 152 percent this year, according to International Monetary Fund forecasts."Huh? $21T or more in national debt / a $14T GDP = 150% in debt.  How can Lebanon be one of the World's most indebted countries when it is just barely, if at all in front of the US of A??

8th Estate Sun, 11/19/2017 - 05:55 Permalink

I think we can work it out.Turkey: 456.1Lebanon: 286.8The only other two with significant holdings are Egypt (76.3) and Pakistan (64.6)Of course Ukraine used to have 33 tons until the Americans seized it "to keep it safe"So here's the headline to watch out for:"Lebanon/Turkey will deposit $x billion worth of gold with Goldman Sachs as collateral for a $x billion x-year loan at x% annual interest. Lebanon/Turkey isn’t selling the gold, but is merely using it to secure the borrowed money."They "aren't" selling the gold.

Money_for_Nothing Sun, 11/19/2017 - 06:29 Permalink

Battle of Central Banks.

In the end the groups that have effective control of the military are the king-dukes-marquis-counts-barons...
eg The group that controls Egypt's military is a marquis.

We don't know who is King (what group) etc because we are not on the privy councils and the facade of Democracy is useful.

SNB is probably doing the smart thing. eg Buying non-controlling-interests in liquid US stocks.
Have few options when buying the volumes the SNB is buying.

Russia and others have to buy gold and expensive weapons because they are out of favor with the King.
Libya and Qaddafi would be alive today if Qaddafi hadn't bought gold. Qaddafi should have bought desalinization plants.
Buying gold makes one a target.

RussianSniper Sun, 11/19/2017 - 09:23 Permalink

Nearly the entire world believes the USA/Evil Empire, is on the precipice of default.

-Illegal wars
-Illegal printing of fiat currency
-Illegal use of military force
-Illegal acts of past presidents

Lots of powerful ships, fighter jets, bombers, drones and countless weapons.

Only a matter of time before the illegal and immoral, US establishment/permanent ruling class, turn these weapons on their own people.