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Politics : Idea Of The Day
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To: FJV who wrote (19527)8/26/1998 2:56:00 AM
From: IQBAL LATIF  Read Replies (1) of 50167
 
Franco-- They would repay 32 billion $ worth of debt in rubles over five years with an interest of 20% to 30%, the problem is that repayment of Russian debt denominated in $ is absolute default, now if I am a holder of such an instrument I would like to get out of it for simple reason I am not sure if Ruble is going to stay at present levels if I am sure that we will see devaluation in excess of 25% / annum which is quite possible since inflation will rise its ugly head if Russia chooses the road to monetise the debt. This is what I think are the worst fears and hedge funds are very much long in Russia, they have therefore moved big way in the fixed income instruments expecting that falling yields means a deflation is on its way but I think as we ,move into numbers we will be more concerned with stronger numbers as such you may see that hedge funds may be about to receive another major blow.

In Russia pressure on Ruble will continue as most of these funds will like to sell their holdings today and get out of Russia, however the discounts will be steep and I would think we may see Russian debt trading at 20 cents not in a very distant future. The German Banks are guaranteed their exposure through German government so I don't see that with all the potential it has to create world headlines the investors in Russian finacial instruments have anyone else but themselves to blame, when you go for higher returns you expect higher risks this is one form of market exacting revenge on speculators, I am sure that Russian crisis until we see a resolution will weight heavily on the markets but I will still be more worried about strategic consequences of this crisis like a coup in Russia that would be more dangerous although Russian Army over a period have shown to be a quite disciplined force but if these soldiers are not being paid this can create another problem.

In context of economic threat Russia's problems on scale of 1-10 are 4 and Europe will come forward to address them as it is their backyard and they know it that in interconnected integrated world they cannot let Russia burn, they are already in it through sovereign guarantees this time it would be a kind of underwritten Russian bond but IMF to bail out the hedge funds will be quite inappropriate. The Mexican settas and tessebanos unlike Russian 32 billion maturing debt was not pre-dominantly held by speculators.

Foe what it is worth-- my two cents
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