• Matheus Zani

🌎 Latin America's 'pink tide' | Thai pro-democracy rally | Germany losing control on Covid-19

Updated: Nov 24


October 23rd, 2020


Happy Friday!


Believe it or not, 3 other things happened this week outside of the Trump Vs Biden debate.


The last season of the Brexit soap opera is apparently coming to an end. Yes, the inevitable finally happened on Wednesday. Less than a week, after Boris's threatening speech about the end of trade negotiations, leading to hard Brexit, negotiations are back. Yes, we have lost count of how many restarts and how many deadlines, but they are back. And everything indicates the goal of finding a deal by mid-November. It's the main event in the EU, so place your bets. Maybe we should get moderator, Kristen Welker to adjudicate this battle with her mighty mute button to control the ruckus.



Did You Know...


The UK joined the European Union in 1973 and is set to leave definitively on 31st December 2020. Do you know who was the last country to join the EU?


(Answer below)


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BOB


Is there no role for Evo Morales in the new government?



In November 2019, the White House celebrated a dramatic change of power in Bolivia after Evo Morales and his vice president stepped down under pressure from security forces and anti-government protesters amid controversial reports about the election’s legitimacy. President Donald Trump’s statement last November highlighted the fall of another leftist government in LATAM, linking Morales’s government to the authoritarian regimes in Venezuela and Nicaragua:


After nearly 14 years and his recent attempt to override the Bolivian constitution and the will of the people, Morales’s departure preserves democracy and paves the way for the Bolivian people to have their voices heard.” He added, “These events send a strong signal to the illegitimate regimes in Venezuela and Nicaragua that democracy and the will of the people will always prevail.


However, this week, after eleven months, the landscape has completely changed. Last Sunday (18), the progressive candidate, Luis Arce, decisively won Bolivia’s presidential election. His party, Movimiento al Socialismo (Mas), where Evo Morales remains the president even from exile in Argentina, also retained its majorities in both houses of congress.


Figure 1. The Bolivian economy under Evo Morales administration


Figure 2. Cyclical, but consistent GDP


The reason for Arce’s victory lies in the popularity of its policies. It was those policies and their contrast with the current regime’s – rather than some irrational allegiance to Evo Morales, as the right often implies – that won the election for Arce. Also, right after the final election’s result, Arce said there was no role in his government for Evo Morales, albeit Morales will remain the president of Mas. But, will Morales's influence be limited to that position?


Another important question to be asked is whether Arce's victory will fuel the sense of momentum behind left-wing politics elsewhere in the region. Is Lula ready for a new challenge against Bolsonaro?



FX

One of the economic challenges that Luis Arces may face as the new president of Bolivia is to increase the international reserves. The progressive fall in international reserves led Morales’s administration to lock the USD/BOB at 6.97 bolivianos in 2011. While some economists believe that the Bolivian should experience a progressive currency’s devaluation to move towards a free-floating exchange rate system, others believe that for now, it is an impractical measure that would destabilize the country.



First Look


4 Ways CFOs Can Use FX Risk Management To Grow their businesses



The role of the Chief Financial Officer (CFO) is crucial in companies as they take a more comprehensive approach to the business as a whole and promote a more general business focus.


All corporations have been facing the same uncertainties when it comes to currency fluctuations (Covid-19 pandemic, Brexit, global economic crisis, social riots, etc). So, given the degree of change, such endeavors require, this would seem to be an ideal opportunity for CFOs to play a major role.


Read More Here


THB


Thai Protestors Return to the Streets in Number(s)



Carpe Diem translates to “seize the day”. On Thursday 22nd October, Thai government officials lifted the ban on political protests of more than five people and dropped censorship threats aimed at media outlets. It is safe to say that Thailand seized this day.


Recap on Thailand’s protests


Ascending to the throne in 2016, King Maha Vajiralongkorn’s first move was a bold one. King Maha took the fortunes of the Crown Property Bureau and placed them into his now bulging back pocket. This turned King Maha into the richest royal in the world. He now sits on a mountain of gold, grossing higher than the wealth of Queen Elizabeth II, the oil-rich King of Saudi Arabia, the Sultan of Brunei combined. Those assets? A whopping US$70 billion.


The masses took to the streets of Bangkok, ignoring government bans on protesting. The pro-democracy movement was instigated primarily by students at Thammasat University who sought restoration of the assets back to the Crown Property Bureau.


Unlike in France where a new protest erupts each week, a protest in the streets of Thailand is a huge deal. Merely criticizing the monarchy can result in a 15-year maximum prison sentence.


These protests have come at a critical time for Thailand. During 2020, the Thai economy endured contractions of 9.7% quarter-on-quarter leading into 2020. Before COVID-19, Thailand was already suffering: devastating droughts, diminishing productivity growth (2.5%), the US-China trade war, and to top it off - a strong currency.


For a country that relies heavily on tourism, accounting for roughly 20% of GDP, it is in the best interest of King Maha to resolve this ASAP. Already suffering from a lack of tourism, civil unrest to this scale is likely to spook business sentiment, which only just restored to a level not seen since pre-COVID-19 (Fig 1).

Figure 1. Bank of Thailand Business Sentiment

Source: Bloomberg


Currently faced with an ultimatum to restore the assets or endure the wrath of the Thai people, the future of Thailand’s fragile economy lies in the hands of King Maja.


FX

USD/THB is a volatile pair, nearly 5.47 %/annum. The wider trade surplus is supportive of the Thai baht this year in the face of weak tourism and elevated political uncertainty currently. The pair has been pretty resilient to the latest escalation of political turmoil in the country with the USD/THB firm around the 31.20 level.



EUR

Will Germany Survive the Second Wave?

Germany is at risk of losing control over the COVID-19 virus, health officials warned. The government is scrambling to create new tactics as infections spike across Europe. The long-dreaded second wave has arrived.


The German Institute for infectious diseases reported on Thursday that 11,200 new COVID-19 cases have been recorded over the previous 24 hours. The institute has voiced deep concern over the imminent threat that COVID-19 poses to the public.


The icing on the cake is that panic buying is starting to sweep the nation again. Despite having learned a valuable economics lesson on panic buying back in March, the Federal Statistical Office of Germany reported a spike in the sale of toilet paper, disinfectants, and sanitary products. Federal Statistical Office of Germany posted the following tweet, “hamster purchases are starting again.” Fortunately, the stories of Bratwursts and saurkraut are well stocked.


Winding back a few months, it can be said Germany made it through the first wave of COVID-19 relatively unscathed, in comparison to other European countries (Fig X). Despite Germany still seeing infections reach 365,000 and 9,911 death, Intensive care facilities were at no stage overrun (Fig 1).

Figure 1: Number of Deaths in Europe per country

Source: Johns Hopkins University


Germany’s relative success to other European countries such as Spain, who has surpassed a million Covid-19 cases (Fig 2), can be attributed to early decision making, the cooperation of scientists and politicians, and lastly the involvement of local governments.

Figure 2: Number of Deaths in Europe per country

Source: Johns Hopkins University

However, as cases begin to spike again, coupled with the onset of restrictions announced by German Chancellor Angela Merkel, fear glooms across the country. The big concern is whether the EU can endure a second lockdown and what the ramifications on the economy will be.

FX

EUR/USD remains trading near 1.1800, after hitting its highest level in mid-September. The common currency has been losing footing as market participants are raising concerns about whether the Covid-19 may be out of control in the bloc.



In Other News


A Dozen Protesters in Nigeria Reported Killed by Security Forces


Iran and Russia Seek to Influence Election in Final Days, U.S. Officials Warn


China's Xi Jinping delivers thinly-veiled swipe at US during Korean War anniversary speech


Lebanon's PM-designate, named as part of French initiative to save the country, steps down


Brexit Briefing: EU ‘blinked first’ in negotiations but real hardball starts now


Bolsonaro Denounces China-Butantan Vaccine Agreement and Intensifies 'Vaccine War'


Currency Heat Map

This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.



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Quiz of the week


Answers


The last to join is Croatia – in 2013




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