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Beyond Ratings Weekly Digest

Your briefing on augmented financial risk analysis

N°121 ▪ 17th November 2017


This week, we are pleased to present our redesigned weekly newsletter. The Beyond Ratings Weekly Digest offers our take on the latest hot topics in augmented financial risk analysis. We hope you enjoy the new format, and, as always, we welcome any feedback.

Best regards,

The Beyond Ratings Editorial Team


Beyond Ratings at COP 23 and the launch of the Worldwide Climate Policy Platform!

Beyond Ratings was invited to speak at two events at COP23 on Monday, November 13th. In the morning at the French Pavilion, we launched the Worldwide Climate Policy Platform, a simulation tool for international negotiations in nine languages (English, Español, Français, 日本語, Português, Русский, 中文, हिन्दी, عربي). This initiative allows users to compare different CO2 emissions allowances for countries to reach a 2° goal.

Later, Beyond Ratings co-founder and CEO Rodolphe Bocquet spoke at a panel discussion around How new climate risk and impact metrics can empower development finance institutions.  This official COP23 side event was organized by University of Zurich (UZH), Vienna University of Economics and Business (WU), Inter-American Development Bank (IDB), and Climate-KIC.



Venezuela in selective default: President Maduro is changing his strategy

On Monday, November 13th, Venezuela invited its major international creditors to Caracas in the hopes of reaching an agreement to restructure a part of the country’s foreign debt that was already arriving at the end of its 30-day grace period. The day before, President Nicolás Maduro calmed the markets by assuring that the country would “never” declare itself in default. In the absence of an agreement between the Venezuelan government and its international creditors at the end of Monday’s meeting, Standard & Poor’s declared Venezuela on “selective default” on Tuesday, November 14th. The credit rating agency said it has noted the country’s inability to repay USD 200 million on two bonds. How did the country get there and why can it not pay its debt when the country is sitting on one of the largest oil reserves in the world?

The process of debt restructuring is invariably a long and complex process during which the different parties can take time to reach an agreement on the precise terms of the restructuring. This period can often lead the country seeking to restructure its debt to the point of a selective default. It is time to Venezuela to bear the brunt of this situation. This particular episode of selective default is more the result of a changing strategy from President Maduro, for good reason, as the country is in dire straits, paying the heavy toll of many years of Chavism and the next presidential elections are approaching fast…

We said the country was in dire straits. Indeed, economic management of the country since Hugo Chavez’s accession to power in December 1999 has been catastrophic. Successive governments have nationalized many of the key industries, imposed price, capital and foreign exchange controls, failed to diversify the country’s revenue sources, and have not even bothered to invest in the country’s cash cow, i.e., Petróleos de Venezuela SA (PDVSA). The country has therefore found itself even more dependent on what is today its only source of income: oil. Black gold accounts for 96% of Venezuela’s exports, and the collapse of oil prices from July 2014 made the “near-bankruptcy” of the sovereign state inevitable. According to the IMF, since 2014 the country’s GDP has been cut by one third and inflation could be as high as 700%. However, with the lack of reliable statistics for the country yet another legacy of the Chavez era, it is difficult to accurately diagnose the state of the economy. In addition, Caracas is under U.S. sanctions and as of Monday, the European Union decided on an embargo on weapons and equipment in order to not add to the internal repression that the country is already suffering.

Why has President Maduro changed his mind and is now agreeing to a partial default on the country’s debt? With the exception of the USD 200 million that the country is defaulting according to Standard & Poor’s, Caracas is expected to repay about USD 1.47 billion by the end of the year and more than USD 8 billion by 2018. Even though the country still has almost USD 10 billion in foreign exchange reserves, it was necessary to react quickly in order to review the country’s priorities. Indeed, the country has already been cutting spending to honour its debts. And it was imports that were the first to be sacrificed. Some necessities have been missing in Venezuelan supermarket shelves for months and even years. According to some local sources, Venezuelans involuntarily lost an average of 8.6 kilos in 2016. Moreover, the American and now European sanctions have reinforced the feeling of isolation of the country. In order not to further aggravate the situation, it was necessary to act and ask to renegotiate the debt. This is what President Maduro is doing, albeit without much success so far. The next presidential elections should be held in October 2018 and there is no doubt that the outgoing President will wish to be re-elected…

However, the debt restructuring of Venezuela seems almost impossible. U.S. financial sanctions prohibit U.S. investors from participating in any new debt transaction. In addition, the Chavist power, still in place, attracted the wrath of the IMF in 2007 and a financial rescue by Washington in exchange for an ambitious plan of economic and political reforms is out of reach. It would therefore seem that with the current political power in place, no solution is possible. It remains to be hoped that the default remains selective and that a new daring political leadership emerges from here to the next presidential elections…

Julien Moussavi, Head of Economic Research




Sovereign Risk

Real GDP rose by 2.5% in both the Eurozone and the EU

In its flash estimate for the Q3 2017, Eurostat  published growth figures for the Eurozone and the European Union (EU). Real GDP rose by 2.5% on a year-on-year basis in both the Eurozone and the EU in Q3 2017, after +2.3% and +2.4% respectively in the previous quarter. This figure represents the largest expansion in 10 years, with the exception of Q1 2011 (+2.9% YoY for the Eurozone, though mainly due to a base effect). In more details, Romania for EU and Latvia for Eurozone recorded the highest growth rates with +8.6% and +6.2% YoY respectively. On the other side of the sample, Denmark for the EU and Belgium for the Eurozone recorded the lowest growth rates with +1.1% and +1.7% YoY respectively. Turning to the big four of the Eurozone, the growth figures on a year-on-year basis for Q3 2017 are: +2.8% for Germany, +2.2% for France, +3.1% for Spain and +1.8% for Italy. The growth of the United Kingdom came out at +1.5%, which is one of the lowest growth rates in the EU.

The Eurozone, largely forgotten by global growth, is making a strong comeback. But all member countries are not in the same boat. In addition, inflation is still absent. The policy mix should be conducted with the utmost care to avoid precipitating the Eurozone towards the end of its cycle.

Sources: Beyond Ratings, Eurostat



World tax avoidances in tax havens reach no less than USD 350 bn yearly

Estimated tax loss in various countries (USD bn)

The “Paradise Papers Leaks” revealed that businesses, heads of state, and global figures in politics, entertainment, and sport have hidden their wealth in tax havens. Depending on assesment methods, world tax avoidances in tax havens reaches no less than USD 350 bn yearly. According to the International Consortium for Investigative Journalism (ICIJ), the loss of income for the European Union is estimated to approximately USD 120 billion (around EUR 102 bn), a figure that corresponds to 40% of its net borrowing in 2016 (Eurostat: USD -249 bn).

We would like to compare this figure with another:  USD 267 bn. This corresponds the yearly necessary total amount to end world hunger, according to the U.N., and feed 800 million people worldwide that do not have enough to eat…

Sources: Beyond Ratings, UNU-WIDER


Carbon/Climate Change

Carbon budget to achieve the goal of the Paris Agreement

Comparison of three possible scenarios to achieve the Paris Agreement’s temperature goals
It is estimated that the global carbon budget to achieve the goals of the Paris Agreement is about 600 GtCO2 (corresponding to the midpoint for 1.5–2°C). This represents only about 15 years of emissions at the current level, and emissions are still increasing. In this context, a recent WRI report underlines the need for a quick and massive shift towards a strong reduction of emissions. The later the shift, the harder it will be to achieve international temperature goals. Even if emissions peaked today, they should reach net zero emissions around 2045 at the global level, implying a steep decline. Two years after COP 21, this explains why uncertainties remain high regarding what countries will really manage to achieve, and why 15,000 scientists recently issued a common warning about negative global environmental trends.

Note: This figure illustrates three scenarios for spending the same carbon budget of 600 GtCO2 (corresponding to the midpoint for 1.5–2°C

[Peters 2017]), with emissions peaking in 2016 (green), 2020 (blue), and 2025 (red).

Source: Beyond Ratings, Mission 2020, WRI





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Photo credit via Visualhunt/CC BY-SA or other: Front page ▪ Credit 1: CECAR – Climate and Ecosystems Change Adaptation R; Credit 2: Tony Webster; Credit 3: Kiefer.; Crédit 4: NASA Goddard Photo and Video / Research notes ▪ Credit 1: DnDavis (via; Credit 2: zhu difeng (via Fotolia); Credit 3: Mny-Jhee (via Fotolia); Credit 4: xmentoys (via Fotolia)


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