international finance grp9

8/8/2019 International Finance Grp9

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Presented to:

Prof. N K Gupta


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Abhishek Sinha (03)

Emaad Patel (19)

Humaid Shaikh (34) Mezbon Dsouza (54)

Suken Shah (102)

Vijay Udayar (115)

2


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Debt Levelsaccelerated

indevelopedeconomies

after 2000

2008:Financial

Crisis

To recovercountries

took moreDebt

Now mosteconomies

plan toDeleverage

ReduceGDP

Growth

Probabilityof Double

DipRecession

3


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13,450

9,088

5,208

5,021

3,733

2,410

2,287

2,132

1,994

1,339

920

834

809

669

655607

553

548

507

369

365

347

334

274

224

216

United States

United Kingdom

Germany

France

Netherlands

Spain

Ireland

Japan

Luxembourg

Switzerland

Australia

Canada

Austria

Sweden

Hong KongDenmark

Greece

Norway

Portugal

Russia

Finland

China

Korea South

Turkey

India

Brazil

External Debt (In Bn $)

Source: CIA

4


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Dot Com Bubble

Feds Low interest Rate

policy

Housing Bubble

Advanced economies

Household debt

increased significantly

5


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6


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Weaker Countries get hit first

Stronger Nations have limited

capacity

Without deleveraging

economy cannot return to its

real growth But deleveraging results in

below average growth

7


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JUSTI Y

Addingnewde t

TAKE

ewde t

STRESS

Caused bynewdebt

NEED

To relievestress

8


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Obama proposed apackage of $180 bn in

tax breaks &infrastructure outlays Last year $814 bn

stimulus was added O

utstanding debt is$13.5 tn Stop excess incentives

on interest payments!!

9


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The crisis came from debt and you dontescape it with more debt

Governments will only bring about anend to the credit crisis through theblood, sweat and tears of cutting

the amount of public debt

Nassim Nicholas Taleb

10


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DubaiWorld (Govt. owned investment company)

Launched in March 2006 and the chairman was Sultan

Ahmed bin Sulayem.

Operates in 12 countries around the world

Some famous real estate included The Palm Islands and The

World (Nakheel Properties)

In March 2008 Dubai world threatened to withdraw funds

from Europe (as EU demanded transparency)


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DubaiWorld had a total of around $60 billion debt of

the total of $80 billionofEmirates.

On November 26, 2009, Dubai World proposed to

delay repayment of its debt worth $26 billion for 6

months.

Both Moodys and Standard and Poor's Investors

Services heavily downgraded the debt of various

Dubai government-related entities.


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On November 30, shares dropped in Dubai and Abu

Dhabi by 7.3% and 8.3%, respectively.

U.S. stocks fell sharply, The Dow Jones industrial

average lost about 155 points. Oil prices plunged as

much as 7 percent, European stock indexes fell over

3%

European banks debt exposure in DubaiWorlds Debt

amounts to USD24.1bn.


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The company laid around 10,500 employees

around the world .

Individual Indians are more likely to be affected

by the Dubai financial fiasco as 4.5 million

Indians live and work in the Gulf region and they

remit around 10 billion dollars every year to the

country.


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Restructuring the debt worth $23.5 billion

Converted debt of 8.9 billion into equity

Abu Dhabi, decided to assist DubaiWorld, they gave the a aidof$10 billion


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The Palm Jumeirah


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TheWorld


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May 2010

Greek Govts budget deficit estimated to be

more than 13.6% , one of the highest in the

world relative to GDP. Government debt

expected to exceed 120% of GDP, in 2010

The news sends shockwaves across the investor

community


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May 2, 2010:

Euro zone and International Monetary fund agree on a 110 billion

rescue package for Greece, conditional on implementation of

harsh Greek austerity measures.

Proposed spending cuts of 11% of GDP in 2010, 4.3% in 2011, 2% in

2012 and 2013.

According to Daniel Gros, eminent economist on Eurozoneissues, 1% of GDP decline in Greek govt spending lowers demand

by 2.5%, hence proposed high spending cuts, would lead to

recession.


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Loss ofinvestor confidence, in Greece as well as other EUROzone economies, withhighbudget deficits, as they appear riskyto lenders like:

IRELAND

SPAIN PORTUGAL

Loss of confidence due to:

i. widening ofbond yield spreads

ii. credit default swaps

Bailout package implies loss of credibility for GREECE, and maycause Euro to fall against major currencies


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Initially, currency devaluation helped finance borrowings.

With the introduction of EURO, lower interest rates, allowedGreece to borrow.

The Global financial crisis which began in 2008, affected 2 ofGreece's largest industries:

A) TOURISM

B) SHIPPING

Consequently, revenues in 2009 fell by 15%.


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To comply with Monetary Union guidelines,Government of Greece, consistently, anddeliberately misreported the countrys official

economic statistics, hiding actual level of borrowing.

In 2009, govt raised deficit estimates, alarmingly,from 6% to 12.7%.

In 2001, Greek govt paid hefty fees to GoldmanSachs for arranging transactions that hidborrowings.


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Greek debt market is reliant on foreign investors to theextent of 70%, hence posing the risk of a sovereign riskcontagion, especially to banking system, including that ofItaly, and UK.

80% ofbudget savings of Greece go to Germany, France andother foreign debt holders (banks)

April 2010, Greek debt rating downgraded to junk status, by

S&P.


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Bond yields increase in absolute and relative terms toGerman government bonds.

Downgrading of rating of Spain, Ireland, and Portugal.

Higher yields on government debt would cause concern ofpotential bank runs in many European nations.


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Deficit and Surplus

Bilateral issue

Multilateral problem IMF Current Account

Deficit $1.45 Trillion

Surplus $1.67 Trillion


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50.1

60

65.2

69.2

72.7

0 10 20 30 40 50 60 70 80

Top 1

Top 2

Top 3

Top 4

Top 5


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22.3

38.1

50.7

56.3

60.9

0 10 20 30 40 50 60 70

Top 1

Top 2

Top 3

Top 4

Top 5


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Imported Technology

Capacities for global market

Increase in Export

Current Account Surpluses


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0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006 2007

20.5 17.435.4 45.9

68.7

160.8

371.8

426.3

$ Billion


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Uneven Development

Germany Surplus

Backward member

Rebalancing adjustment

Providing financial support


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Current Account Balances as a Percentage of GDP

2005 2006 2007 2008 2009

Germany 5.1 6.5 7.9 6.6 4.0

Greece -7.3 -11.3 -14.4 -14.6 -11.1

Ireland -3.5 -3.6 -5.2 -5.4 -2.8

Italy -1.7 -2.6 -2.5 -3.4 -2.7

Portugal -9.5 -10.0 -9.4 -12.1 -9.7


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