GIA editor
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Weekly Risk Outlook

Syrian Support Group meets. Argentina reenters global debt bond market. Russia-Iran trade deals loom. Global metals conferences on the horizon. G7 convenes in Japan over economic policy.
16 May 2016

Global Risk Insights publishes a weekly selection of world events and their possible economic and political consequences.

Foreign ministers from Syrian Support Group meet to discuss peace negotiations

Foreign ministers of 17 countries of the Syrian Support Group are expected to meet in Vienna for a 2-day conference to reiterate efforts to revive peace talks in Syria. The talks are following the failed effort to do so in April. Both the Foreign Minister of Russia, Sergei Lavrov, as well as U.S. Secretary of State, John Kerry, will be in attendance, and are likely to guide the discussion.

However, it is yet unclear whether any significant shift in the talks will be achieved since neither of the members has altered their opinions on the essential issues nor the most relevant facts on the ground have changed. Key strongholds in Syria keep experiencing severe humanitarian crisis and the overall situation in the region is still unstable. Because Assad’s government does not seem to weaken its position, the chances are that now peace will be negotiated from the position of strength.

Given that even the most fundamental elements of any peace process have yet to be agreed upon — whether Assad actually steps down and how, what kind of government would be inaugurated, etc. — and that opposition forces themselves remain divided on several key issues, it remains to be seen what significant achievements could occur in this week’s meeting aside from drawing further international attention to the issue.

Argentina prepares to reenter the corporate debt bond market

Argentina’s Banco Hipotecario SA offers as much as $200 million in 2020 bonds. This will happen for the first time since July 2014 that the private sector was allowed to provide corporate debt to international creditors following the Macri administration’s conclusion of the sovereign debt dispute with U.S. bondholders. The measure potentially is attractive for foreign lenders, in particular for those focused oт South American bond offerings.

Given the reentry of Argentina and the new investment opportunities in sovereign and corporate debt, the political and economic worries of Argentina’s neighbors, such as Brazil with its filing economic, could provide a welcome boost to the country’s struggling economy, particularly given its years of negative financial press.

Russia-Iran officials come as nuclear deal brings Iran back to the international stage

Russia is hosting the Russia-Iran forum, designed to discuss the implementation of the Iran nuclear deal, on Tuesday. The economy ministers of the alliance are also expected to reevaluate their investment plans.

Russia, a major strategic ally of Iran, and Russian businesses stand to benefit significantly from further investment so long as its preexisting ties can be leveraged successfully. However, though the potential gains may be significant, for many investors, particularly those in the U.S. or those who operate with U.S. banks, the political and legal winds have not shifted sufficiently to ensure that their investments don’t run afoul of both the law and politics.

Considering current economic recession, Russia is unlikely to approach the talks from the position of strength, which could provide Iranian business and public negotiators an opening to negotiate from a position of at least a degree of equity.

Metals  conferences will explore key commodities markets in troubling times

The International Gold and Silver Symposium will be held in Lima, Peru while Perth Australia will host the mining-focused Latin America Downunder Conference. The summit will be followed by Bloomberg’s precious metals forum.

The conferences will explore a development that has rippled across many key emerging economies: the downturn in the metals markets. Although such precious metals as gold, silver or platinum have not experienced a decline, other metals like copper have suffered dramatic reductions in the value. As a result, countries that have major mining operations in these metals have experienced overall reductions in investment as money flows to more predictable revenue sources.

It remains to be seen whether the pace of investment in the metals industry will ever again reach the nearly breakneck pace that marked the early to mid-2000s.

G7 economic leaders meet in Japan to discuss fiscal and monetary policy

Finance ministers and central bank governors of the G7 states — the United States, France, Germany, the UK, Japan, Canada, and Italy — will meet in Sendai, Japan to discuss a number of the main economic issues that have had political as well as economic spillover effects. One of the major topics of discussion is likely to be exchange rate policies.

Several world leaders, including the U.S., have already expressed their concerns regarding the policies of governments to artificially lower the value of their domestic currencies relative to other currencies to artificially boost exports. The U.S. happens also to be one of the biggest attackers of the current practice partly because the U.S dollar, which effectively serves as the global reserve currency, is frequently perceived to be the target of such policies. Although Japan and China argued that the issue is a slippery one, the U.S. is expected to raise the question anyway.

Some other less divisive and controversial issues are scheduled to be discussed within the frameworks of the conference. The members will also debate over expanding fiscal policy: the measure would allegedly help markets across the developing and developed world. Instead of acting discordantly, the countries above are expected to establish a shared approach which could limit the beggar-thy-neighbor policies that have frequently marked global monetary policy during periods of weak or volatile growth in the past.

 

By Stefan Paraber for GIA.

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