Issue 13 April 12, 2007 Economic Research & Analysis Department COUNTRY RISK WEEKLY BULLETIN NEWS HEADLINES NORTHS AFRICA SUDAN Rising risk of attacks U.S. cedes to U.N. demand to delay sanctions A day after Morocco announced that it had foiled a plot by sui- The United States has delayed for several weeks imposing new cide bombers targeting foreign and strategic interests, there sanctions against Sudan over its handling of Darfur to give the were two explosions in the Algerian capital, Algiers, including United Nations more time to negotiate with Khartoum, the U.S. one near the prime minister’s office, that killed over 30 people. special envoy to Sudan said on Wednesday. The United States The al-Qaeda Organization in the Islamic Margreb has claimed was set last month to impose stricter sanctions to pressure responsibility for the bombings in both Morocco and Algeria, Sudanese President Omar Hassan al-Bashir to agree to allow the although this has not been officially verified. Violent attacks peacekeeping force into Darfur. Among new U.S. sanctions is have been increasing in Algeria since January, when the main the addition of 29 Sudanese companies to a current U.S. sanc- Islamist rebel group, the Salafist Group for Preaching and tions list of about 130 firms. Washington also plans to further Combat, changed its name to the al-Qaeda Organization in the limit dollar transactions from Sudanese companies and to slap Islamic Maghreb. The group has claimed responsibility for a travel and banking bans on three individuals, including an number of deadly attacks on security forces and foreigners since "obstructionist" rebel leader. Another strategy was to more the start of the year. These attacks have raised concerns of a aggressively enforce sanctions on Sudan, using similar tools as resurgence of al-Qaeda operations in North Africa, as there have those employed to put pressure on Iran and North Korea. The also been clashes with militants in Tunisia earlier in the year. proposed U.N. sanctions are expected to include an arms embar- Source: Reuters, AFP go, financial or travel bans on targeted individuals and institu- tions, and some monitoring of military overflights in Darfur IRAQ Source:Reuters Sadrists threaten to quit Iraqi government Bashir seeks rapprochement with Chad Iraq’s largest grassroots movement threatened to pull out of the Sudanese President Omar Hassan al-Bashir on Wednesday sig- government, in a sign of growing impatience among Shia radi- naled he was looking for a diplomatic way out of a crisis with cals with a joint US-Iraqi security crackdown that has targeted Chad that has seen the two neighbors threatening military action Shia militias. The Sadrists have pulled out of the cabinet before, against each other. The Sudanese government has accused the putting political pressure on the prime minister Nouri al-Maliki, Chadian army of launching an attack on Monday that killed 17 without making a serious move to topple his government. Their of its soldiers. Chad denied any such deliberate assault, but said statement follows massive anti-American protests on Monday its forces had clashed with Sudanese troops after crossing the and highlights the difficulty Mr Maliki faces in pursuing a pol- border to pursue Sudanese-backed rebels it accused of launch- icy of co-operation with the US and accommodation of Sunni ing raids. Monday's attack has increased tension between the communities that is opposed by many of his constituents. two oil-producing central African countries, whose ties have Source: Financial Times been marred by violence spilling over from Sudan's Darfur region. IRAN Source: Reuters Iran expands uranium enrichment effort Iran announced it is aiming to install 50,000 centrifuges to UKRAINE enrich uranium as part of its nuclear program, a day after defy- Political uncertainty to stay high ing the UN with an announcement that the work has reached an Political tension appears set to remain high and may be aggra- industrial scale. Iran's aim is not only ``to install 3,000 cen- vated in the short term, thus leaving political uncertainty elevat- trifuges at its Natanz nuclear facility but it has planned for ed. The stand-off between President Yuschenko (labeled as 50,000 centrifuges,'' declared the head of the country's Atomic "pro-EU") and Prime Minister Yanukovych (labeled as "pro- Energy Organization, Gholam Reza Aghazadeh. Earlier, Russia") remains well in place, despite numerous bilateral meet- President Mahmoud Ahmadinejad said that Iran has begun ings over the past several days, which failed to resolve the polit- enriching uranium on an industrial scale but didn’t reveal how ical impasse. The PM Yanukovych-led coalition said they much uranium it has already enriched. The Islamic Republic's would only support early parliamentary elections (proposed by announcement was a challenge to the UN Security Council, President Yuschenko), if a presidential election were held at the which on March 24 gave Iran 60 days to suspend enrichment same time, thus raising the political stakes as well as uncertain- after the country ignored previous deadlines set by the interna- ty amid the current political turmoil. In addition, mass protests tional body. Foreign Minister Manouchehr Mottaki emphasized intensified, with PM Yanukovych supporters claiming to have that ``the suspension of enrichment is not acceptable either as a gathered a crowd of 50,000 in Kiev. Political uncertainty will precondition to negotiations or as a result of such talks.'' remain prolonged and may be further aggravated in the near Russia's government, which is building Iran's first nuclear reac- term before a resolution to the conflict is reached. tor, in the southern port city of Bushehr, said it wasn't aware of Source: Merrill Lynch significant developments in Iran's nuclear program. Source: Bloomberg OUTLOOK as labor markets and, for the more advanced economies the very CENTRALGLOBAL & ETERN FINANCE EUROMANUDI weak innovative capacity. In particular, high unemployment IMF says global financial system stable but risks and a growing population are increasingly putting pressure on remain governments in the region to overhaul the current labor market model, which in many countries is highly regulated and often The International Monetary Fund said in its semi-annual Global relies heavily on the public sector and on migrant workers. More Financial Stability Report that the stability of the global finan- flexibility in employment regulations and increased focus on cial system is supported by favorable economic prospects, but meritocracy and professional management would be desirable some financial markets risks have risen since September 2006 steps in the right direction. and have the potential to weaken financial stability. The fund Source: World Economic Forum pointed at the U.S. sub-prime mortgage market, involving bor- rowers with poor credit history, as one area of risk. It said the deterioration of the sub-prime market was more rapid than GLOBAL ECONOMY expected at this point in the downturn in the housing market as IMF says global economy set for continuous a whole. While the fallout in the sub-prime mortgage market has growth in 2007 and 2008 been limited to a small number of lenders, the IMF warned the The world economy still looks well set for continued robust problems could spread to other asset markets. In particular, the growth in 2007 and 2008 despite the recent financial volatility. IMF said the looser underwriting standards may have gone While the U.S. economy has slowed more than was expected beyond the sub-prime sector into portions of the so-called ‘Alt- earlier, spillovers have been limited, growth around the world A’ mortgages, the next riskiest area. And there could be losses looks well sustained, and inflation risks have moderated. in other consumer credit markets, including credit card and sub- Overall risks to the outlook seem less threatening than six prime auto loans asset-backed securities, it said. months ago but remain weighted on the downside, with con- cerns increasing about financial risks. Global growth is expect- The IMF also noted that the recent wave of massive corporate ed to moderate to 4.9% in 2007 and 2008, some ½ percentage buyouts and mergers reveal a weakening of credit discipline. point slower than in 2006. "So far, target firms are mostly those with high cash flows and low leverage," the fund said, adding that “there are signs that Emerging market and developing countries are expected to con- credit risks have risen as valuations of target companies are ris- tinue to grow strongly, albeit at a somewhat slower pace than in ing along with leverage, while credit discipline is eroding 2006. These economies will continue to draw support from reflected the continued weakening of loan covenants.” A col- benign global financial conditions and commodity prices that lapse in one or more high-profile deals could expose banks and remain high notwithstanding recent declines. trigger a wider reappraisal of risks across a broader range of credit product, the IMF cautioned. Particular uncertainties for the global outlook include the poten- Source: International Monetary Fund tial for a sharper slowdown in the United States if the housing sector continues to deteriorate; the risk of a retrenchment from risky assets if financial market volatility were to rise from his- ARAB WORLD torically low levels; the risk that inflation pressures could revive Reforms are key to boost Arab world’s competi- as output gaps continue to close, particularly in the event of tiveness another spike in oil prices; and the low probability but high cost The Arab World Competitiveness Report 2007 indicated that risk of a disorderly unwinding of large global imbalances. A key the United Arab Emirates is the most competitive economy in question in assessing the risks to the outlook is whether the the Arab world, followed by Qatar, Kuwait and Bahrain among global economy would be able to 'decouple' from the United the group of countries at the most advanced stage of develop- States were the latter to slow down more sharply than projected.