The Poon Report
News Summary
Dollarization Is About Who Pays to Clean Up Argentina’s Mess
Taken from WSJ Thursday, 23 November 2023
Greece’s experience with the discipline of the euro shows why Milei’s plan might appeal to voters.
Javier Milei knows how to create a stir. Not only has Argentina’s president-elect shaken up his own country’s politics. He also has sparked a global debate about inflation, economic reform and dollarization—and, even more unusual, an interesting debate about these things. It’s a Thanksgiving-week miracle.
Critics of Mr. Milei’s pledge to ditch the dysfunctional peso and embrace the almighty dollar have focused on relatively narrow questions: whether Argentina holds enough dollar reserves to implement such a policy, whether it is likely to have the fiscal discipline to sustain it, whether the banks could survive it, and so on.
What those critics miss is the international example that helps explain what’s really going on in Argentina: Greece.
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The British Tories’ Desperation Budget
Taken from WSJ Thursday, 23 November 2023
The party belatedly realizes high taxes weigh on economic growth.
This week’s Autumn Statement marks the last opportunity Messrs. Sunak and Hunt are likely to have to impress voters before an election expected next year. The Tories are down by double digits in the polls against the Labour Party in large part because voters are sour on the economy. Inflation peaked at 11.1% in October 2022 and only recently fell below 5%. Wage growth is far from catching up to the new price level, and growth remains soft.
Alas for the Tories, Mr. Hunt’s budget is weak tea. The two most promising ideas are to reduce the rate of social-insurance tax on personal incomes to 10% from 12%, and to make permanent the full-expensing allowance for business investment by companies. These are expected to deliver ￡10.4 billion and ￡9.1 billion in annual tax relief, respectively.
Both measures fulfill the primary requirement for any pro-growth tax policy, which is to improve incentives to work and invest. Mr. Hunt says full expensing is the biggest tax break for British business in modern history.
Yet these measures are small compared to the tax burden that Tories have previously inflicted.
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Anti-Islam firebrand Geert Wilders wins Dutch election
Taken from The Telegraph Thursday, 23 November 2023
Geert Wilders, the veteran anti-Islam firebrand, has won a convincing victory in the Dutch general election after one of the country’s most close-fought campaigns for many years.
Exit polls showed the leader of the Freedom Party (PVV), who has called for a ban on mosques, the Koran and Islamic schools, well ahead of his two rivals in what had been expected to be a knife-edge three way race.
Mr Wilders was predicted to win 35 seats, up 18 from the last elections in 2021, according to preliminary results. Final polls before Wednesday’s vote had put him on course to secure 28 seats.
“The largest party in the Netherlands, and I tell you, the voter has spoken. We are sick of it and we are going to ensure that the Dutchman comes first again,” the 60-year-old political veteran said amid cheers from his surprised and overjoyed supporters.
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US thwarted plot to kill Sikh separatist on American soil
Taken from FT Thursday, 23 November 2023
Joe Biden raised concerns of New Delhi involvement with India’s Narendra Modi in September
US authorities thwarted a conspiracy to assassinate a Sikh separatist on American soil and issued a warning to India’s government over concerns it was involved in the plot, according to multiple people familiar with the case.
The target of the plot was Gurpatwant Singh Pannun, an American and Canadian citizen who is general counsel for Sikhs for Justice, a US-based group that is part of a movement pushing for an independent Sikh state called “Khalistan”.
US President Joe Biden raised the matter in a discussion with India’s Prime Minister Narendra Modi during a meeting at the G20 summit in New Delhi in September, the Financial Times has learnt.
The National Security Council confirmed the Financial Times report of the plot on Wednesday and said the US had raised the issue with India, including “at the senior-most levels”.
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Developing countries secure bigger international tax role for UN
Taken from FT Thursday, 23 November 2023
Prospect of new co-operation convention threatens OECD’s ability to set fiscal agenda
Countries at the UN have voted for it to take a greater role in international tax matters, in a move that threatens the ascendancy of the OECD, the body that has led these discussions for decades.
Developing nations have been pushing for a greater UN role after growing frustrated at global tax negotiations co-ordinated by the Paris-based OECD.
In 2021, more than 130 countries agreed a landmark deal aimed at curbing corporate tax avoidance by multinationals. But developing countries have complained they will receive relatively little revenue from the reforms compared with richer nations.
A vote held at the UN on Wednesday adopted a resolution that will begin the process of creating a greater role for the UN through establishing a convention on international tax co-operation.
The measure, which was championed by African countries, was supported by 125 nations, most of which were low or middle-income countries — including Nigeria, Ghana, China, India, Brazil and South Africa.
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Nissan set to build two new electric models at its Sunderland plant
Taken from FT Thursday, 23 November 2023
Japanese carmaker expected to invest ￡1bn and allay any uncertainty over future of its UK factory
Japanese carmaker Nissan will on Friday announce it is to build two new electric models at its UK plant as part of an investment expected to be worth more than ￡1bn, according to people briefed on the plans.
The company’s decision to manufacture electric successors to its current Qashqai and Juke models at its Sunderland factory has been aided by financial support from the British government that could run into hundreds of millions of pounds, the people said.
Prime Minister Rishi Sunak is expected to visit the site on Friday for the announcement, which will be made by Nissan chief executive Makoto Uchida. Nissan and the UK government declined to comment.
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Nissan warned repeatedly after the UK voted for Brexit that any tariffs affecting its cars exported to the EU could jeopardise its business model.
However, it subsequently welcomed the trade deal that the UK negotiated with the EU.
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China’s FDI withdrawal wave could ‘slow’ as outlook improves, analysts say
Taken from SCMP Thursday, 23 November 2023
An exodus of foreign capital from China – a prime concern for policymakers in an era of diminished growth – has entered a “slowed” and “stable” stage as an improved economic outlook has raised hopes some foreign investors may return, government advisers said on Wednesday.
Comments from subject matter specialists indicate growing domestic confidence in the results of a countrywide charm offensive to entice investors back.
Jiang Xiaojuan, former deputy secretary general of the State Council, said while short-term geopolitical and supply chain changes have caused foreign businesses to leave China, the trend will slow.
“It appears to have stabilised,” she said at an annual conference hosted by financial magazine Caijing.
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Pentagon says Congress funding fights delay programmes to counter China
Taken from SCMP Thursday, 23 November 2023
The Pentagon has estimated that its modernisation programme – considered essential to its efforts to deal with the “pacing challenge” that China poses – is four years behind due to funding debates in the US Congress.
Deputy Defence Secretary Kathleen Hicks said on Tuesday that the department faced “significant consequences” from the short-term spending bills, or continuing resolutions (CRs), used in recent years, the latest of which passed earlier this month.
“We estimate we’ve lost probably a total of about four years’ worth of progress on our modernisation efforts,” she told the Defence Writers’ Group, adding that in the “nearly 11 years that we’ve been dealing with CRs, that is a cost you can’t buy back; you just can’t buy back time”.
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China property distress drives up Asian junk bond default rates amid economic headwinds, liquidity challenges: Morningstar
Taken from SCMP Thursday, 23 November 2023
Asian bonds with credit ratings near distressed territory have grown as a proportion of the regional high-yield universe since mid-2021, according to a Morningstar report, primarily on account of China’s property sector which is facing economic and liquidity challenges.
Bonds rated below B comprised 4.6 per cent of the high-yield bond universe in September, versus 2.55 per cent a year ago, the firm said in a report on Wednesday, citing JPMorgan data. Bonds rated below BBB- are considered high yield bonds.
“The elevated level of defaults can be chiefly attributed to the distress in the Chinese property sector, which has suffered due to macroeconomic headwinds, slumping property sales, and mounting liquidity challenges,” Arvind Subramaniam, senior analyst at Morningstar, said in the report
China’s property sector has racked up US$114 billion of cumulative defaults since the beginning of 2021, and that accounted for 94 per cent of total defaults in Asia over that time frame, according to JPMorgan. Another US$8 billion could still be at risk of default in 2024, analysts including Soo Chong Lim said in a note last week.
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Stellantis buys back shares worth $1 bln from Chinese JV partner Dongfeng
Taken from Reuters News Thursday, 23 November 2023
Chrysler-parent Stellantis said on Wednesday it has repurchased 50 million common shares from Dongfeng Motor (Hong Kong) International (0489.HK) for about 934 million euros ($1.02 billion).
Stellantis, which has a joint venture with Dongfeng Motor in China, said it plans to cancel these shares and the transaction with Dongfeng would not impact its 1.5 billion euros open-market repurchase program.
The program, announced on Feb. 22, is expected to complete by the end of 2023.
Chinese automaker Dongfeng would retain 49.2 million common shares, which represents 1.58% of Stellantis' share capital post-cancellation.