Friday, December 21, 2007
Kazakhstan & the Credit Crunch
Western investors pumped $40.7 billion into Kazakhstan, most during the past three years, according to Moody's Investors Service. The money provided the cash for a surge in domestic lending for new homes, cars and other accoutrements of the country's improving fortunes. Now, the foreign money has almost dried up.Yes, but the growth has been achieved with outside investments probably averaging around 10 billion a year for the last few years, or 1/8th GDP. To put it another way, that's 12.5% of GDP, and now that money has dried up. The consequences for Kazakhstan's domestic economy are likely to be quite severe. They might get back 3-4 billion of that.
Kazakhstan banks' sales of Eurobonds and syndicated loans, which totaled $8.63 billion during the first eight months of 2007, fell to $300 million in the following three months, according to data compiled by Bloomberg.
Four times the size of Texas, the central Asian country parodied in the 2006 movie ``Borat'' boasts an $80 billion economy that has grown almost 10 percent a year since 2000.
There are similar situations in many such countries. Note that Kazakhstan's major economic resources at this time are metals, minerals and fuel. These are all commodities which are acutely sensitive to world growth.
My belief is that these lower echelon EM countries are likely to be starved of funds and that growth will be very constricted, which will begin to chip away at global infrastructure improvements. It's a reality that those with money to spend are more likely to invest it in buying cheap shares in the likes of Merrill and Citibank rather than continuing to pump it into the ex Soviet bloc countries.
Poland may be in a similar situation. The next tier of EMs are likely to do better, because they are more developed. Still, the world is shortly going to be in competition for money, and the weaker economies will be elbowed off the trading floor.
And, btw, so will the more reckless financial investments. Understanding the true plight of credit insurers such as MBIA is related to the fact that their revenues are drying up as their expenses increase.
I think Poland is over the US and is now courting Putin who did save Russia from the bankers.
Steppenwolf, an astute analysis. I don't have anything to add - I wanted to use the country as an example.
The downward cycle involved in a real credit crunch shows up in many odd places, but it does show up and it does affect demand for fundamentals such as steel and concrete.
Many other EM countries will have similar situations. Some of the European and American (I mean north and south) companies will see a drop in their orders and revenues as a result.
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