Articles in Category: Macroeconomics

The markets appear strangely relaxed about the growing economic and political standoff between the U.S. and China.

Maybe because it has been a slow burn over the last six months or maybe because no one quite believes either side would be stupid enough to allow a full-blown trade war to develop, but markets are generally quite sanguine … so far.

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Yes, the Chinese stock market is down. In addition, commodity prices are depressed relative to where we would have expected them to be back in Q1, when global growth was strong and there appeared little to deflect both mature and emerging markets from enjoying another couple of years of robust growth.

Gideon Rackman, writing in the Financial Times, argues that we are being far too relaxed about this, that for a number of reasons the prospect of these initial $50 billion of tariffs escalating to $200 billion — or worse — is real and the consequences should worry us.

For a number of reasons, neither side is likely to back down.

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Following Russia’s military intervention in Ukraine in February 2014 — the Ukrainian crisis, as it became known as — a number of countries imposed sanctions on Russia led by the United States and Europe, but supported by many others like Canada, Australia and Japan.

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The impact on Russia’s economy was significant, but by early 2016 many countries, even within the previously united E.U., were calling for sanctions to be lifted (or at least revised).

By that stage, the Russian economy had recovered from the initial shock and, despite the restrictions, was doing rather well.

But this time last year, it all began to go downhill (again, this despite a very pro-Putin president being in the White House).

Initiated by President Barack Obama, Congress passed the Countering America’s Adversaries Through Sanctions Act, which imposed new sanctions on Russia for interference in the 2016 elections and its involvement in Ukraine and Syria.

Then, in March of this year, President Donald Trump imposed financial sanctions under the Act on the 13 Russian government hackers and front organizations that had been indicted by Mueller’s investigation into Russian interference in the 2016 U.S. elections.

This was followed in April by further economic sanctions on seven Russian oligarchs and 12 companies under their control. Among these was Oleg Deripaska, a move that sent such severe shock waves through the aluminum market that the administration hastily backpedaled and gave a stay of imposition until October “to allow the market to adjust.”

Many expected a permanent exception to be made for Rusal or for some fudge of ownership to be manufactured such that Deripaska was no longer deemed to be the controlling entity in holding company En+ or Rusal.

But as the date looms ever closer, questions are being raised about whether this will be how it plays out in practice.

More, rather than fewer, sanctions keep getting added to the list. A recent Economist article reports that in August alone, the U.S. has: slapped penalties on Russian shipping firms accused of trading oil with North Korea; imposed restrictions on the arms trade in connection with the poisoning of ex-Russian spy Sergei Skripal in Salisbury; and began congressional hearings on the two new pieces of legislation designed to punish Russia for its interference in elections.

The Economist report goes on to say the greatest threat to Russia’s economy comes from two proposed bills: the Defending Elections from Threats by Establishing Redlines Act of 2018 (DETER) and the Defending American Security from Kremlin Aggression Act (DASKA).

Sen. Lindsey Graham, one of DASKA’s six bipartisan co-sponsors, is quoted as saying it is the “sanctions bill from Hell.” When details of its contents made their way into the Russian press in early August, the rouble slid to two-year lows and the share prices of Russian state banks began falling, according to the Economist reported.

Source: Thomson Reuters

Russia has been taking active steps to mitigate the effects, funneling rising oil revenues into its National Welfare Fund and building up reserves.

However, despite a weaker rouble helping exporters, the economy is suffering.

The uncertainty around sanctions, their impact and the possibility of further measures is having a dire impact on inward investment. Compared with a year earlier, foreign direct investment fell by more than 50% in the first half of 2018, The Economist reported.

Coming as they do on top of the 10% U.S. import tariff on foreign-sourced aluminum, we will see considerable volatility and disruption to the aluminum markets this autumn if sanctions are applied to Deripaska, not to mention other oligarchs on the sanctions list. Shipments out of Russia for any metals – steel, aluminum, and other base and specialty metals – are already being severely delayed as banks scrabble to run compliance checks on the shareholdings and involvement of already sanctioned parties in those producers.

Delays of a month in paying bills normally processed in an hour are now common, which is disrupting supply chains and work flow. For the first time, the market is asking what will be the impact of a total ban on Russian metal supplies (never mind just Rusal’s aluminum).

Your supplier may not be Rusal, but your supplier’s supplier may be (or even his or her supplier’s supplier). The elevated conversion premiums we have seen this summer among European extruders is a reflection of this anxiety and will only get worse if further sanctions disruption ensues.

This uncertainty should be prompting all U.S. metal importers to explore the supply chain of their suppliers in order to understand the potential risks they face and, if necessary, take appropriate steps to safeguard supplies.

For those consumers thinking they only buy domestically and are therefore not affected — think again. You may be buying foreign made metal via a distributor and are potentially still exposed. Even if you are not, domestic prices will rise if there is any significant disruption to foreign supplies.

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As we saw with the 25% tariff on steel and 10% on aluminum, tariffs cause domestic producers to move swiftly to capitalize on competitors’ cost increases by raising their own prices.

Whether by design or dint of investors’ view of a currency’s true worth in the wake of tariffs, emerging-market currencies are sliding — in some cases, fast.

The Turkish lira is by far the most dramatically impacted, as the escalating tariff standoff with the U.S. has hastened an already weakening currency toward a 40% decline, according The Economist reported.

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Source: Bloomberg (via The Economist)

Some suggest that global emerging-market currency weakness is a direct cause of the slide in the Turkish lira, but that is too simplistic.

Yes, the lira’s slide has set a very negative tone for emerging-market currencies, but the backdrop of rising dollar strength predates the spat between the Washington and Ankara.

According to The Week, India’s currency fell to an all-time low this week, reaching 70 rupees against the U.S. dollar. The South African rand and Argentinian peso have also seen big drops in recent days.

The devaluation of the rupee has led to fears the “Fragile Five” economies — composed of Brazil, India, Indonesia, South Africa and Turkey — which overly rely on growth fueled by foreign investment are all vulnerable to a debt default crisis.

Some analysts are warning the market could increasingly look at the five as a single asset class and apply the same negative attitude to all of them. That would be despite some, like India, having comparatively limited external foreign debt and good control of inflation and fiscal balances, compared to, say, Argentina, where the central bank unexpectedly lifted its main interest rate by another 5% points to an eye-watering 45% to support the currency.

The rise came after the Argentine peso had fallen for a sixth consecutive day to hit a record low against the dollar. Argentina not only has significant foreign currency denominated debt but poor fiscal control of the economy and weak banks make them very susceptible to a currency crisis.

Emerging-market stability is one thing; in itself it has the potential to create a crisis. Of more worry, however, is the potential for a global currency war, as America’s opponents either deliberately weaken their currencies to counter the impact of tariffs or tacitly allow the market to devalue the currency by not stepping in to support a slide.

The Chinese yuan has already slid 9% since April. This alone has more or less countered the 10% import tariff on aluminum and significantly mitigated the 25% tariff on steel goods into the U.S. for Chinese exporters.

According to aforementioned Economist article, there are fears that if the U.S. slaps tariffs on a further $200 billion of tariffs on Chinese exports, the yuan will slide by a further 5-6% over the coming months to a 15% devaluation. That would not only help Chinese exporters cope with the tariffs, it would put U.S. exporters at a severe disadvantage.

As the yuan (and other currencies) are sold, sellers move funds to safe havens – namely the dollar, further fueling the dollar’s rise. As the yuan falls, it drags down other Asian currencies, as its neighbors allow their currencies to weaken to maintain some degree of parity and continued access for their exporters to China.

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Weakening emerging-market currencies, particularly the yuan, would be seen by Washington as a hostile act, not an inevitable consequence of the tariffs, and in itself may spark further retaliatory action.

It has to be said, so far Beijing does not appear supportive of a weakening currency, but that may change if its trade war with the U.S. escalates.

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The breaking news this week is that Chile’s Escondida mine operator BHP has announced it looks like a strike has been averted and that a settlement plan is being put to the workers.

That is good news for a market widely expected to go into deficit this year, according to Mining.com.

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But the prospect of a strike was all that was holding up the copper price, which promptly fell 5% on the news, touching a low of $2.55 a pound ($5,622 a metric ton) in New York and down more than 20% from a nearly four-year high struck a little over two months ago, according to Mining.com.

Production in the world’s largest copper producer, Chile, has been plagued this year by a number of issues (in addition to BHP’s problems).

Competitor Antofagasta announced this week a disappointing set of first-half results. The miner reported production was down 8.5% in the first six months of the year compared to last, due to poor ore grades and infrastructure issues at its biggest mine. Revenue rose on higher prices earlier in the year, but profitability still fell 32%.

The copper price has taken a beating recently on widespread fears about global trade and political turmoil in places like Turkey, but a recent S&P Global report paints a rosy picture for producers regarding future prices, saying new discoveries are falling way below historical standards.

Producers have increasingly focused on developing their existing resources, the report states. This may be due to lack of faith in future prices — the end of the super cycle, or a more cautious post-financial-crash investment climate.

Chinese growth is slowing and producers are more inclined to maximize existing resources than bet the farm on new exploration and invest in new greenfield projects.

S&P reports Latin America hosts over half of copper discovered. Chile and Peru alone account for 83% of copper discovered in Latin America and 46% of the global total found since 1990. Of the 139.9 Mt of copper contained in the 29 discoveries made over the past 10 years, almost two-thirds is contained in the four largest deposits, S&P reports, illustrating the somewhat precarious nature of the copper supply market.

The pool of projects likely to come to market over the next decade is limited by the low level of investment and the long, up to 20-year lead in from discovery to production.

Although prices are currently under pressure from trade fears and a strong dollar, global demand has held up well so far, in the region of 2-3% annually.

Not surprisingly, miners are flagging up supply risks as a bigger issue for the copper market than lack of demand.

In the medium term, they are probably right. Despite all the noise about trade fears and tariffs, the reality is global growth and metals demand has remained robust. Contemporary developments are likely to trump medium-term supply risks in the minds of investors. As such, prices are going to remain subdued this year — if not bearish, then at least trading sideways.

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How we go next year, though, is another matter.

If trade issues can be even partially resolved and some degree of confidence restored, prices could recover; but, for the time being, it is buy as needed.

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Import tariffs appear to have become the weapon of choice for this U.S. administration.

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Some administrations use military power, but Trump prefers economic pressure to achieve his ends.

His latest skirmish is with Turkey — not that many in the U.S. would notice yet, but in Turkey it is abundantly clear they are under attack.

Value of Turkish Lira Plunges

What sparked the crisis we will come to, but the immediate impact has been a collapse of the Turkish lira, plunging 12% late last week to a new record low — off by a third since the start of the year — in a slide that started with fears of mismanagement of the economy, according to the Financial Times. However, weakness this year has been greatly exacerbated by the current standoff with the U.S.

So severe has been the currency’s slide that it is causing contagion in other emerging market currencies. The Russian rouble is at a two-year low – itself suffering from a similar standoff with the U.S. over sanctions. But other emerging-market (EM) currencies are also down, as are global stock markets, in a marked risk-off shift by investors unnerved by deteriorating trade relations between the U.S. and the rest of the world.

Commodities have followed suit. Oil and gold are both down. It remains to be seen if metals will come off as the dollar rises relative to other currencies, as U.S. Treasuries are back in fashion for a risk-averse market.

How Did the U.S., Turkey Get Here?

So, what caused the rift that led to two NATO allies getting to such a situation?

Turkey was already subject to the 10% on aluminum and 25% on steel import tariffs applied to much of the rest of the world, but a breakdown in negotiations between the two governments for the release of an American pastor, Andrew Brunson, seems to have sparked the announcement by President Trump that tariffs on Turkish metal products should be doubled to 20% for aluminum and 50% for steel. We say “appear” because no reason for the increase was given and some speculation remains that the 15% devaluation in the Lira was undoing the impact of the original tariffs, so the simple answer from the White House was to double them.

However, the detention of the American pastor on terrorism-related charges is certainly an issue. The U.S. claims the allegations are bogus and have been trumped up to use as a negotiating tool to force the U.S. to extradite Fethullah Gülen, a Turkish preacher who Turkish President Erdogan claims is responsible for a failed 2016 coup attempt. There is little or no evidence this is true and the demand for extradition probably has more to do with Ankara’s angst at Gülen’s ongoing criticism of the regime’s behavior and legitimacy than any hard evidence he was involved in the coup.

However, Turkey blocked the agreed release of Brunson from prison and commuted his position to house arrest rather than repatriation to the U.S., sparking the breakdown between Washington and Ankara.

Ripple Effects

What started as a minor spat has, to Ankara’s dismay, spiraled into an economic crisis.

Foreign banks are withholding funding for fear of further sanctions and may soon call in lira debts over fears companies will not be able to meet their commitments. Certainly, the European Central Bank was looking into lenders with the biggest exposure to Turkey’s economy prompting a slide in bank share prices across Europe.

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According to the Washington Post, steel imports from Turkey have already fallen sharply, with only 4% of U.S. steel imports coming from Turkey in the first half of 2018, almost 50% below 2017.

India is booming, the Indians would claim — and who could deny they are doing well?

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The economy grew at 7.7% from January through March, expanding gross domestic product (GDP) to $2.6 trillion, eclipsing France to become the world’s sixth-largest economy.

Source: Stratfor

But while growth has been impressive, questions are being asked about how much longer the economy can keep it up.

Rising U.S. Fed rates and increased U.S. Treasury bond issuance are squeezing global dollar liquidity and depressing the Indian rupee (relative to external currencies in which India imports).

The rupee has tumbled more than 8% against the rising dollar in 2018, according to a Stratfor report. India is the world’s third-largest consumer of oil and imports nearly 80% of its crude, the report states.

Since oil is a key input across various sectors of the economy, rising crude prices will put upward pressure on inflation, which rose to 5% in June (a five-month high).

With an election coming up in 2019, Prime Minister Narendra Modi will be unlikely to raise interest rates too much, or rein in spending as he courts the farmer vote, or worry unduly if the deficit reduction targets are not met this year or next.

Securing a new five-year term will override such considerations at the expense of longer-term fiscal improvements. In the process, he will store up issues for the next administration; the longer they are allowed to grow, the more severe the corrective action will need to be.

On the plus side, a lower rupee will boost exports, making Indian industry and service providers more competitive — or, at least, more profitable on the international market than previously.

But with only 18.9% of GDP attributable to exports, the economy is more likely to be harmed by higher import costs fueling inflation and an outflow of currency reserves than it is the benefit from an increase in exports.

India’s current account deficit in the fourth quarter of fiscal year 2017-18 ballooned to $13 billion, Stratfor reports, while by comparison, its current account deficit for the whole of fiscal 2016-17 was only $14.4 billion.

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India may be growing strongly this year, but history has shown it needs to. With 12 million young people coming onto the job market each year, if India is to grow its minuscule middle class to become the engine of consumption that it has in China, the country has to generate a lot of well-paying jobs in the year ahead.

Steady as she goes should be the captain’s orders, not boom and bust.

Stock markets in the West react to peaks and troughs on the Shanghai stock market as if the market were a true indicator of the health of the Chinese economy. Shanghai has been down since talk of sanctions has spooked markets in China, Europe and the U.S.

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But in some parts of the world, where dependence on China is more than a simple +/- 0.1% of GDP, whole economies are reacting to the fear of a slowdown in China.

A recent Financial Times report details how the Aussie dollar has slumped 4.5% in just two weeks. Trade tensions have risen over investors’ fear for the prospects of the country’s largest trading partner, an indicator of how dependent has Australia become on China’s health and prosperity.

Likewise, copper, which for decades has been dubbed “Dr. Copper” for its supposed sensitivity to the health prospects for global growth, should maybe be renamed “Sino Copper” for the way in which it increasingly has become tied to the fortunes of one country (China) rather than the global economy.

After touching a four-year high of $7,348 a ton on June 7, copper has plunged 14%, or more than $1,000 to $6,303 a ton, the Financial Times reported, as investors fear a slowing China will be detrimental for copper demand later this year and next.

China is the world’s largest importer of copper, and Australia — the fifth-largest copper producer — is intimately tied to the world’s second-largest economy. China is its biggest customer, not just for copper but also for iron ore, coal, aluminum, bauxite and a range of other materials.

A follow-up article will analyze a wider range of metrics to better understand the state of the Chinese economy and to what extent the country’s growth trend for 2018 is a direct result of tariffs (compared to factors in play before April).

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What that will show is that China had much to contend with prior to tariffs and a trade war broke out. While massive foreign exchange reserves and a well-funded banking system means the economy is essentially sound, the current trade issues have come at a bad time for policymakers in Beijing and may partly explain the relatively restrained response from the authorities.

Last week was quite the week in Europe.

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U.S. readers may only be picking up the roller coaster in Italian politics via the fluctuations in their pension fund share portfolio values, but it is probably no exaggeration to say European democracy has been tested this week … and the process is far from over.

Italians kicked the process off with March parliamentary elections that ushered in months of wrangling between the two biggest winning parties, the anti-establishment Five Star Movement (or M5S) and the far-right League, formerly known as the Northern League. Both are considered to be the most extremely populist parties Europeans have voted for in decades. When they finally formed a working coalition with an aim to form a government, markets got nervous that many of their campaign promises may actually be put into practice.

Sound familiar?

Well, those fears crystallized when Five Star Movement head Luigi Di Maio announced the appointment of Euroskeptic economist Paolo Savona for finance minister, before the Italian president overruled them (at the behest of Brussels, many believe).

Even if President Sergio Mattarella acted in isolation, his willingness to go against the politically elected representative with the avowed aim of protecting the Euro and the European ideal, is a remarkable case of prioritizing European stability over national democracy. His actions were no doubt attended by sighs of relief in Brussels, Paris and Berlin, where the rise of populist parties in Europe and elsewhere have been met with disdain and derision.

Savona is well known for his anti-Euro views and his proposed appointment spooked markets, which promptly took fright. Investors dumped Italian debt and spreads between Italian and benchmark German rates spiked.

Source: Reuters, Adam Samson/Financial Times

 

Meanwhile, bank shares across Europe were dumped as investors feared Italy could crash out the Euro and banks would be left nursing massive liabilities, despite the fact most debt is held by the European Central Bank (ECB) after months of bond buying under quantitative easing (QE).

The bank share price collapse is what led downfalls in share prices across the world. Yet, after a few days of uncertainty, markets are recovering after M5S indicated it may be willing to reconsider the appointment of Savona. The League is not sounding quite so conciliatory, but the two parties are back in discussion to try to find a solution.

The irony is if Italy is forced back to the polls, the two parties will probably increase their share of the vote. There has been widespread support across Italy for their actions since the March election, but if they increase their share of the vote it will provide an even clearer mandate for an anti-austerity, reflationary, debt-fueled agenda.

Early comments from European politicians — such as Günther Oettinger, Germany’s E.U. commissioner — that upheaval in the markets would exert healthy, pro-European discipline on Italian voters were met with derision across the country, as it was seen as Brussels telling the Italians how to vote. Oettinger’s comments on German television — “My concern and expectation is that the coming weeks will show that developments in Italy’s markets, bonds and economy will become so far-reaching that it might become a signal to voters after all to not vote for populists on the right and left” — were promptly slapped down by more media-sensitive officials, like European Council President Donald Tusk, forcing Oettinger to issue an apology.

Italian President Sergio Mattarella tried to appoint Carlo Cottarelli, a former International Monetary Fund (IMF) official, to form an interim government, but that simply encouraged M5S and the League to get back to the negotiating table to find a solution of their own.

This story has a long way to run.

Italy has lagged behind the rest of Europe’s major economies for the last decade with minimal growth. Voters blame the E.U. — and, in particular Germany — for the trend. Germany is running a persistent current account surplus of 6%, well above E.U. rules, yet is not being held to account.

Italy feels if Germany can break the rules to the detriment of fellow E.U. states, then why cant they? Why should the economy be hobbled by debt limits and austerity when fellow E.U. members flout the rules?

You can see their point.

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In such an atmosphere, the rise of populist parties is understandable, even if their solutions make little economic sense.

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It is a question we often see on the financial pages of newspapers or news sites, but rarely take time to seriously consider the consequences – why is the West apparently in a period of stagnant productivity growth?

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A recent article in The Telegraph explores the position for the U.K., but many of the trends observed — and, likely, reasons behind — Britain’s poor productivity growth are very similar to those in the U.S. and the rest of Europe.

For the sake of good order, we should define productivity growth. Simply put, it is a measure of the efficiency of production, usually measured as the ratio of inputs to outputs, or output per unit of input. Clearly, for workers to be paid more without a firm going bankrupt, just as for a country to raise living standards without living beyond its means, productivity per unit of labour has to increase over time. And so it has broadly over time, but not in a straight linear fashion, and therein lies a clue to our current malaise, the authors of the article suggest.

The article draws substantially on comments made and work done by Ben Broadbent, the Bank of England’s deputy governor. Broadbent fears Britain is past its peak and destined for a sustained period of poor growth in living standards due to stagnant productivity growth. Measuring productivity growth is far from easy, not least because “work” changes. In the days when most outputs were delivered by the manufacturing industry, it was easier to measure inputs and outputs; in today’s digital world, many services, like the internet, are largely free at the point of use.

Yet even so, the trend is clear: over the past decade, productivity has grown by just 2.1%, according to the Office for National Statistics as quoted by the news source. That is compared to before the financial crisis, when it typically grew by more than 2% every year. As a result, for much of the 2008-2014 period, real wages were in negative territory, a situation that was variously blamed on the financial crash, low interest rates perpetuating companies that would otherwise go bust, and lack of finance to allow firms to invest.

But Broadbent believes it is more deep-seated than those reasons, saying the wave of benefits seen from digitization we accrued in the 1990s and early 2000s has now passed. In addition, he argues, our position now is more akin to the industrial world’s lull between the age of steam and the onset of electricity – the big gains arising from steam had all been made yet and the benefits of electrification had not been felt, such that firms did not have a technological advantage encouraging investment, growth and expansion or face the threat of being left behind.

So far, there is limited evidence of new technologies like the mobile internet, artificial intelligence and mass automation transforming productivity. Broadbent believes it is simply too soon, but that given time and further technological progress, we could see these technologies having a transformational impact.

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Let’s hope so. Combined with the impact on traditional manufacturing jobs that globalization has had in mature markets and the growing disparity in incomes during this century, populist politics could have a destabilizing effect on Western societies, which will only be encouraged by a prolonged period of flat, or worse, negative growth in standards of living.

India has over-promised and under-delivered on so many fronts over the decades.

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Home of the world’s largest and, despite its young age and huge diversity, still thriving democracy, it has promised growth to rival China. Apart from brief bursts of activity, it has generally failed to live up to its plaudits expectations.

One reason often cited, apart from chromic infrastructure and the legacy of a British love of bureaucracy, is endemic corruption.

Graft had become so deeply engrained in Indian business culture that many had written the country off from delivering sustainable long-term growth for its hundreds of millions of poor. The relatively very few rich got richer while the miserably small middle class grew so painfully slowly compared to China that many thought India would never haul itself out of its emerging-market status.

But critics had not factored in Narendra Modi. While not everyone would support his Hindu-biased populism, he has brought immense progress to India, overcoming entrenched interests with a politically astute skill and dynamism.

There is still a long way to go, but a recent Economist article describes how he has taken the fight to the ruling business elites in a blitzkrieg campaign to dismantle tycoons’ practices of personalizing gains and socializing losses.

Founding shareholders of Indian companies have long made use of a loophole of Indian corporate law that prevents banks from seizing companies in default on their loans, so owners of companies can run their organizations badly or, worse, suck out funds for personal gain with little fear of losing their money-making enterprise.

The system has actively perpetuated this system with a bunged up judicial system that takes months, if not years, to hear cases and state banks’ lending to firms on the basis of personal connections rather than sound business-lending principles. This cronyism was almost encouraged by officials not wanting banks to post losses, such that state banks are kept afloat by the government yet are carrying massive debts which will never be repaid.

Modi’s government new bankruptcy code came into force in May 2016. After almost two years of preparation, the first big cases have hit the headlines last month, The Economist reports. The fate of 12 troubled large concerns amounting to 2.2 trillion rupees ($33.4 billion) of non-performing debts is due to be settled within weeks. Another 28 cases worth a further 2 trillion rupees are set to be resolved by September. Between them, these firms account for about 40% of loans that banks themselves think are unlikely to be ever be repaid. In total some 1,500 companies are said to be insolvent, according to The Economist.

A new set of dedicated courts, backed by a cadre of insolvency professionals, is on hand to help banks seize assets and sell them to fresh owners, the article states. To focus the minds of both bankers and borrowers, if no deal can be cut within nine months the firm is shut down and its equipment sold for scrap.

As a result, those looking for cheap, distressed assets are already circling for pickings from the current 12 and 28. Such turmoil on this scale will create a short-term drop in investment as firms hold off to see what becomes available. In the longer term, the process of death and renewal will probably be highly dynamic for the economy.

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It will also focus the minds of today’s Indian tycoons on running their businesses better and courting political favor less. Indian business is shifting focus from “who you know” to “what you know,” which is definitely a good thing for the health of the country in the future.