1 IMF smells trouble for Argentina and the world (BBC) The International Monetary Fund has warned that Argentina’s legal defeat in its fight against hedge fund investors may have wider implications. On Monday, a US Supreme Court ruling sided with bondholders demanding Argentina pay them $1.3bn. The IMF said it was concerned about “broader systemic implications”.
Meanwhile the ratings agency S&P cut Argentina’s credit rating, warning the ruling made it more likely that the country would default. S&P reduced the credit rating by two notches from “CCC+” to “CCC-“. The move makes it more expensive for Argentina to borrow money.
Argentina’s Economy Minister, Axel Kicillof, said the government was “starting to take steps” to restructure the debt under Argentine law – as a way of avoiding complying with the US order. Argentina has agreed a restructuring with the bulk of investors holding its defaulted debt, but the so-called “hold-outs” have been fighting for 100% of the value. The Supreme Court rejected Argentina’s appeal against an order to pay the full value of bonds that some hedge funds bought after the country defaulted more than a decade ago.
The South American country defaulted in 2001 following its economic crisis, and has been in a legal battle with bondholders led by hedge funds NML and Aurelius Capital Management. Argentina argues that the funds bought most of the debt at a deep discount after the default, and has since tried to impede the country’s efforts to restructure. Investors holding more than 92% of the defaulted debt agreed in 2005 and 2010 to write off two-thirds of their pre-crisis value, providing Argentina with time to re-build its economy. But the hedge funds owning the remaining 8% held out against the restructuring.
2 Supermarket Morrisons to cut 2,600 jobs (Sarah Butler in The Guardian) Morrisons has confirmed plans to cut 2,600 store management jobs as part of a restructuring that will affect 15,000 staff. The supermarket told staff that it was starting a 45-day consultation process about plans to take out two tiers of management in its stores as it attempts to cut costs to help fund price cuts for shoppers. Dalton Philips, chief executive, said: “These changes will improve our focus on customers and lead to simpler, smarter ways of working.”
The move is the result of trials of three possible slimmed-down management structures over the past year. Morrisons has come under fire from former chairman Sir Ken Morrison and his supporters over poor service in its stores, which they blame on cuts to the number of hours worked by store staff. It said it had found customers liked the new structures because they increased the number of staff on hand to help them.
The company, which employs 126,000 people in total, believes about 2,600 Morrisons staff will be made redundant because of the management changes. Those job cuts come on top of at least 100 planned redundancies at the retailer’s distribution centres. Morrisons is under pressure to reduce costs in order to fund plans for £1bn in price cuts and product improvements over the next three years. Last month Morrisons cut prices on 1,200 items by an average of 17% after poor trade over the key Easter period contributed to a 7% slump in quarterly like-for-like sales.
3 BRICS seen to have shrunk to ‘CI’ (Luciana Magalhaes & Jeffrey T Lewis in The Wall Street Journal) Former Goldman Sachs executive Jim O’ Neill, who coined the BRICS term referring to fast-growing emerging markets countries, is rooting for the “B” in that acronym to win the World Cup. “Brazil symbolizes everything that’s beautiful about football,” the British economist said.
Still, the 57-year-old, who retired from his job as chairman of Goldman’s asset management arm last year, said the fortunes of Brazil’s national team, like those of its economy, will come down to execution. “There are better teams than Brazil — Germany, Italy, Holland and Spain are really good,” he said. “Brazil will have to play very well to win it.”
If Brazil loses, it won’t be the first time the country has disappointed the economist. Back in 2001, O’Neill coined the acronym BRIC to represent the rising economies of Brazil, Russia, India and China, later adding as “S” for South Africa to the group. Brazil’s economy has frequently underperformed since then, expanding only about 2% or less each year after a sprint to 7.5% growth in 2010. O’Neill said one of Brazil’s biggest hurdles is a government that he views as “more Chinese than the Chinese” themselves, using what he says are heavy-handed, interventionist economic policies.
The economist said if he had to come up with a BRICS-like term today, it would probably just be “CI,” for China and India, which he views having the best outlook for growth. He’s particularly bullish on India, where Narendra Modi, who was elected Prime Minister last month in landslide, has called for extensive reforms to the country’s economy.
A loss by Brazil in the World Cup might be another bad omen for Rousseff, he said. “If Brazil were to be knocked out early, that could add to negativity about the government.”