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Welcome to the latest edition of Frontier Markets News. As always, I would love to hear from you at dan@frontiermarkets.co with news ideas, feedback and anything else you find interesting.
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Africa
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Guinea-Bissau president dissolves parliament. President Umaro Sissoco Embalo moved to dissolve parliament on Monday, sending lawmakers home and calling for snap elections in December. On Thursday, the parliamentary opposition condemned the president’s move and refused to accept the dissolution.
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President Embalo cited corruption among members of parliament as the impetus for his decision, Deutsche Welle reports, but some experts view the maneuver as an unconstitutional power grab. If the motion succeeds, elections will be held on December 18 of this year, two years ahead of schedule.
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Guinea-Bissau's parliament and president are at loggerheads
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Guinea-Bissau has experienced a civil war and four coups, most recently in 2012, since becoming independent from Portugal in 1974. Only one president has completed his term in the tumultuous West African country. Embalo was the country’s first peacefully elected president.
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IMF extends aid to Somalia as US troops prepare to enter Mogadishu. In the wake of the re-election last week of Somalia’s former President Hassan Sheikh Mohamud, the IMF has agreed to extend its agreement with the East African country for three months. The multilateral had been poised to end its $400 million aid program if Somalia did not elect a new administration. The program will now run until August 17.
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A building damaged in an attack by al-Shabaab in Mogadishu, Somalia. Photo: Farah Abdi Warsameh/Associated Press, via WSJ
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The IMF bailout could reduce Somalia’s debt to $557 million, roughly equivalent to 6% of the country’s GDP, AfricaNews reports. The IMF decision to extend the program comes as the United States beefs up its presence in the chaotic Horn of Africa country. On Monday, US President Joe Biden authorized a deployment of special operations forces to Somalia aimed at combating rebel group al-Shabaab, the New York Times reports.
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More than 70% of Somalia’s population live on less than $1.90 a day, and the country has been submerged in decades of civil war and increasing threats from al-Qaeda linked terrorist group al-Shabaab.
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The IMF also reached agreements this week on loan packages to Niger and Senegal.
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Asia
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Sri Lankan central bank restricts individuals’ forex holdings as turmoil intensifies. Sri Lanka's central bank on Thursday restricted the amount of foreign currency individuals can hold to $10,000, with criminal penalties for holding foreign currency for more than three months, the AP reports. He also confirmed the country's first foreign bond default, Nikkei reports.
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The country is facing a severe debt and foreign-exchange crisis that appears to be reaching a grim climax. Sri Lanka’s foreign reserves have shrunk from $7.5 billion when president Gotabaya Rajapaksa took power in 2019 to nearly zero today.
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Newly minted Prime Minister Ranil Wickremsinghe said the country could not find $5 million to import gasoline, as fuel ships teasingly wait for payment miles from the country’s shore. Sri Lanka urgently needs $75 billion to provide the nation with essentials including fuel, food and medicine, Wickremsinghe said, but the country’s treasury is struggling to find even $1 billion.
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Police fire tear gas during an anti government protest in Colombo. Photo: AP/Eranga Jayawardena
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The government is actively seeking bridge financing from India and China while officials negotiate a deal with the IMF. These interim loans will “enable the country to buy essential imports until there is an agreement with the IMF, which will then release significant funds from the IMF, World Bank and Asian Development Bank,” former World Bank economist Shanta Devarajan wrote in an email to FrontierMarkets.co.
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Rupee falters as Pakistan bans imports. The Pakistani rupee fell to an all-time low against the dollar this week as inflation continues to batter the South Asian country. The rupee hovered around 200 per dollar on Friday, according to data from foreign exchange analytics company XE.
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People in Hyderabad, Pakistan, lined up to buy flour; the price of flour jumped 42% in one week, according to government data. Photo: PPI/Zuma Press, via WSJ
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Pakistan’s newly formed government recently reopened talks with the IMF on a $6 billion bailout that had been on hold since the ouster of former Prime Minister Imram Khan in April. An IMF bailout would likely require Prime Minister Shehbaz Sharif to end a $600 million per month gas subsidy, but any increase in fuel prices could be politically costly, especially as Khan prepares to run for his former seat atop Islamabad’s government in elections expected in October.
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On Thursday, Islamabad banned the import of luxury goods including cars, cell phones and cosmetics, France24 reports. Pakistan’s foreign currency reserves shrank from $16.3 billion in February to $10 billion in May.
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Middle East
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Hezbollah-led coalition loses seats in Lebanon’s election. Hezbollah and its allies lost their parliamentary majority in Lebanon’s first election since the 2020 Beirut port explosion, in a setback for the Iran-backed militant and political group, the Wall Street Journal’s Nazih Osseiran reports. With no alliance winning a clear majority, lengthy negotiations could ensue between the various factions in Lebanon’s sectarian-based political system over forming a government.
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Lebanese President Michel Aoun, left, cast his vote Sunday. His Free Patriotic Movement, which is allied with Hezbollah, lost three seats. Photo: Dalati Nohra/Associated Press
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A prolonged deadlock could derail the reforms needed to unlock the billions of dollars in international aid and loans that could help alleviate the tiny Middle Eastern country’s economic woes.
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While Hezbollah maintained its tally in the 128-member Parliament, its allies and partners, especially the Free Patriotic Movement—a Maronite Christian party founded by President Michel Aoun—lost some seats. The pro-Hezbollah coalition won 62 seats this time, down from 71 in the last election in 2018, the official results show.
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The FPM’s main rival, the Lebanese Forces, a right-wing Christian party aligned with Saudi Arabia, was among the big gainers. Independent candidates, many backed by the civil-society groups that sprang up from the economic protests of 2019, also scored wins.
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Latin America
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Crypto adoption spreads in Argentina even as central bank tightens rules. With a weak banking system, over 50% inflation, and strict currency controls, Argentina is proving fertile ground for cryptocurrency adoption, reports the FT’s Lucinda Elliot. Research firm Chainalysis found last year that Argentina had the highest rate of cryptocurrency adoption in Latin America and the 10th highest globally.
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Last year Argentina recorded the 10th highest rate of cryptocurrency adoption anywhere in the world. Photo: Bloomberg
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This rapid adoption comes against the backdrop of an increasingly antagonistic government. A central bank ban went into effect this month to prevent financial institutions from offering crypto-related services, Blockworks reported.
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Observers have suggested that the ban is designed to fulfill terms in the country’s IMF deal, which included compelling Argentina to discourage cryptocurrency use.
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Biden eases sanctions on Cuba and Venezuela. The Biden administration softened sanctions against Cuba and Venezuela this week, removing key barriers to economic recovery for both. In Cuba, the detente opens US remittance flows, allows select travel, and plans to make over 20,000 US immigrant visas available.
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Cuban pesos. Photo: Reuters/Alexandre Meneghini
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However, the administration continued a ban on US financial entities doing business with Cuba's military-owned remittance processing firm. The moves stand to accelerate Cuba’s nascent recovery after the economy contracted over 10% in 2020, struggling to regain momentum and triggering a rare public backlash.
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This week also saw the Biden administration lift some oil-industry restrictions on Venezuela after months of chatter about the possibility. The potential lifting of restrictions on Chevron and removal of sanctions on a high-level former PDVSA official served as an olive branch to coax President Nicolas Maduro back into stalled talks with the opposition. The move also comes as the Biden administration is also working with European oil firms operating in Venezuela to divert oil to Europe, Bloomberg reported.
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What we’re reading
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Mali government says it has thwarted countercoup attempt. (AP)
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Uganda to withdraw soldiers fighting ADF in DR Congo this month. (AlJazeera)
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Mozambique declares polio outbreak linked to Pakistan. (AP)
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Gabon economy to grow in 2022, but risks remain high, IMF says. (WSJ)
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As new Covid-19 variants drive fifth wave in South Africa, virus becomes a fact of daily life. (WSJ)
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Malaysia’s foreign minister meets counterpart from Myanmar shadow government in Washington. (Reuters)
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Thai inflation pressure grows as government cuts oil subsidy. (Nikkei)
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Indonesia to lift palm oil export ban. (Nikkei)
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China looms large in East Timor 20 years after independence. (Nikkei)
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UN concerned about situation in restive Tajik region after deadly protests. (Radio Free Europe)
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North Korea receives aid from China as Covid outbreak spreads. (WSJ)
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Saudi sovereign-wealth fund buys stake in royal’s investment firm. (WSJ)
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First commercial flight in six years leaves Yemen’s Sanaa amid fragile truce. (France24)
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Despite doomsday predictions, Bulgaria proves there is life after Russian gas. (Radio Free Europe)
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Polish lawmakers reach compromise on court reform with eye on EU funds. (Reuters)
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Ransomware gang threatens to overthrow Costa Rica government. (AP)
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China building a new port and industrial hub in Peru with $3 billion investment. (MercoPress)
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Eletrobras privatization plan wins approval from Brazil court. (FT)
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Lula launches charm offensive to woo Brazil’s business chiefs. (FT)
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Argentina preparing to become a BRICS member with support from China and Brazil. (MercoPress)
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