Financial Times Europe - 21.02.2020

Friday21 February 2020 ★ FINANCIAL TIMES 3

H U D S O N LO C K E T T A N D A DA M SA M S O N
HONG KONG

Chinese lenders have cut a benchmark
lending rate inan effort to prop up the
country’s virus-hit economy as S&P
warned that banks faced a surge of up to
$1.1tninbadloans.
Leading lendersyesterdaycut the
one-year loan prime rate — akey lend-
ing rate sed across China’s financialu
system — by 0.1 percentage points to
4.05percent.
The reduction, which had been
expectedafter the central bank’s own
cuttoitsmedium-termlendingratethis
week, will ease lending conditions. It
marks the latest attempt to stimulate
China’s economy, which has been heav-
ily disrupted by the coronavirus out-
break.
Yesterday’s rate cut came as S&P Glo-
bal Ratings forecast that China’s annual
economic growth pace could tumble as
low as 4.4 per cent if the Covid-19 out-
breakdidnotpeakuntilApril.
In what it considered to be the most
likely scenario, in which the virus peaks
in March, S&P forecast 2020 growth of 5
per cent. Both figures would mark a
sharp slowdown from6.1 per cent astl
year, which was already theweakest
growth for the world’s second-biggest
economyinalmostthreedecades.
The “growth shock” in the worst-case

scenario would spark a Rmb7.7tn surge
in the banking sector’s bad loans to
Rmb10.1tn ($1.4tn) as some businesses
and individuals struggle to repay their
debt, S&P said. Even in the most likely
scenario &P forecast a Rmb5.4tn jumpS
in non-performing loans to Rmb7.8tn,
representing 6 per cent of the banks’
totalloans.
Kenneth Ho, head of Asia credit strat-
egy at Goldman Sachs, said “the pres-
sure on China’s growth raises the ques-
tion of whether there will be rising
credit stresses and more bond defaults
inthenearterm”.
Inanotetoclients,MrHosaid:“Wedo
see slower growth having a negative
impactonoverallcreditquality,”adding
that this weakness would be “partly
offset by a number of policy easing
measures”.
Beijing has rolled out dozens of meas-
ures to support businesses severely
affected by the epidemic. The People’s
Bank of China has made Rmb300bn
available to large lenders as well as cer-
tain local banks in hard-hit provinces
including Hubei province, where the
outbreak began. Health authorities in
China reported 114 new deaths from the

Chinese banks cut lending rate

to boost coronavirus-hit economy

S&P Global Ratings predicts increase in bad loans and slowdown in annual growth to as low as 4.4%

B E N E D I C T M A N D E R — BUENOS AIRES

C O L BY S M I T H — NEW YORK

Investors are braced for acrimonious

negotiations with Argentina and a pos-

sible default after the IMF backed a big

haircut for creditors without urging the

country to implement austerity meas-

ures.

Bondholders were alarmed when the

IMF failed to demand that Argentina

rein in its budget deficit. They feared

that the Fund was siding with President

Alberto Fernández, whose government

has insisted that it will only reach a bal-

anced budget by 2023, with no reduc-

tionthisyear.

“The IMF is being too lenient,” said

one international investor, who fears

that the Fund will not support private

creditors’ attempts to convince Argen-

tina to reach a “more stable fiscal posi-

tion” that would enable debts to be

repaid. “The only way we have left is by

notparticipatinginadebtdeal.”

The IMF — which has lent Argentina

$44bn as part of a record-setting $57bn

bailout since a currency crisis in 2018 —

backed Buenos Aires on Wednesday in a

statement that deemed the country’s

$100bnofforeigndebttobeunpayable.

Although IMF officials had earlier

insisted that the agency was legally pro-

hibited from allowing a haircut on the

money it is owed by Argentina, in

response to demands by local authori-

ties, it called for a “definitive” debt

restructuring that would entail a

“meaningful” haircut on private credi-

tors’bonds.

“Howmanytimesdo[investors]need

to be told? They were told by [Joseph]

Stiglitz that they were going to be disap-

pointed, and the market said we don't

believe you,” said another international

portfolio manager, referring to the

Nobel laureate close to Argentina’s

economy minister Martín Guzmán who

warned recently that “significant hair-

cuts”wouldberequired.

“Then they were told by Fernández

and Guzmán that they were going to be

disappointed, and the bonds traded

down just for one day and then went

backup.Andnowthis.”

Even so, the Fund said at the end of

what it called “very productive” week-

long talks with government officials in

Buenos Aires that it wanted a more

detailed economic plan that explained

how Argentina intended to repay its

creditors, who have also been clamour-

ing for clearer plans from the govern-

ment. The statement also urged author-

ities to make a greater effort to reduce

oneoftheworld’shighestinflationrates.

“We are not surprised by the state-

ment from the IMF but would have wel-

comed more analytical data... to see

what gaps exist and how creditors can

help bridge such gaps,” said Hans

Humes,head of Greylock Capital, which

isleadingoneofthebondholdergroups.

Debt negotiations

Argentina

bondholders

criticise

IMF haircut

virus to the end of Wednesday, taking

total deaths in the country to 2,118and

thetotalnumberinfectedto74,576.

PBoC deputy governor Chen Yulu,

writing in the Financial Times ester-y

day, said it had “ample room for policy

interventions”, arguing the most likely

scenario for China was a “rapid recov-

ery,withthetotaleconomicimpactrela-

tivelycontained”.

Chinese stocks ralliedyesterday after

the rate cut, with the benchmark CSI

300indexclimbing2.2percent.

Michelle Lam, China economist at

Société Générale, said the “major focus

now is to help smaller companies+

survive”.

Ms Lam said broader stimulus meas-

ures were unlikely in the short term,

since many businesses remain closed or

were otherwise unable to borrow and

invest. “Fiscal policy will be more

important;afterall,theconcernisabout

maintaining employment stability,” she

said, predicting more cuts to the central

bank’s medium-term and short-term

lending rates even after the epidemic is

contained.

Additional reporting by Alice Woodhouse

Gillian Tett/Chen Yulu age 9p

Lex age 10p

L AU R A P I T E L —ISTANBUL

H E N RY F OY —MOSCOW

C H LO E C O R N I S H —BEIRUT

Two Turkish soldiers were killed in an

air strike in Idlibyesterday as the Syr-

ian province was gripped by escalating

clashes between Turkish-led forces

and Russian-backed troops loyal to

President Bashar al-Assad.

Turkey’s defence ministryannounced

the death of two of its troops in the

province, sayingthey had been hitin

an air attack. It said t had launchedi

retaliatory strikes in response to the

attack, which left five other Turkish

personnelwounded.

The attack came just hours after

Turkish commandos and their Syrian

rebel allies launched an assault against

Mr Assad’s forces in an eastern part of

the province, where Russia said t hadi

responded with air strikes against

“Turkish-backedterrorists”.

The Turkish defence ministry did not

say whocarried out the fatal attack on

its soldiers or where it had taken place.

But Fahrettin Altun, a senior Turkish

official,blamedtheSyrianregime.

The casualties, which bring the

number of Turkish soldiers killed in

Idlib this month to 15, underscored the

rapidly escalating tension between Tur-

key, Syria and Russia in the province,

and the fraying of the alliance between

AnkaraandMoscow.

MrAssadhaslongsoughttorecapture

Idlib as part of his efforts to retake

“every inch” of Syria, and Damascus has

mademajorterritorialgainsintheprov-

ince, the last rebel-held enclave, in

recent weeks. The assault on Idlib has

triggered what the UN has said is the

biggest single displacement of people

sincetheSyrianconflictbeganin2011.

Turkey, which is desperate to avoid a

freshwaveofrefugeesfloodingacrossits

border,reacted furiously. President

Recep Tayyip Erdogan warned on

Wednesday that it was only “a matter of

time” before Turkey launched a mili-

tary operation in Idlib in n effort toa

reversesomeoftheSyrianregimegains.

TurkeyaccusesDamascusofviolating

a 2018 Turkish-Russian agreement

aimed at preventing a full-scale Syrian

assault on dlib. Moscow and DamascusI

in turn accuse Ankara of breaking its

side of the agreement by failing to halt

attacks by the jihadi groups that domi-

natethemilitantfactionsinIdlib.

Mr Erdogan has demanded that the

Syrian regime withdraw to the lines

agreed in 0182 nd warned that Ankaraa

would push Syrian troops back by force

ifDamascusfailedtocomply.

Despite forging a close personal rela-

tionship withPresident Vladimir Putin

in recent years, Mr Erdogan has been

unable to persuade the Russian leader

to halt the Syrian offensive.Talks

betweenthetwocountrieshavefailedto

produce an agreement to halt the vio-

lence, and officials from both countries

have voiced increasing frustration in

recent months as the number of clashes

betweentheirproxieshaverisen.

Additional reporting by Asmaa al-Omar

Editorial Comment age 8p

See Markets

Syria

Air strike in Idlib province

kills two Turkish soldiers

I N T E R N AT I O N A L

A N D R E S S C H I PA N I — SUCRE

Andrónico Rodríguez, a young Bolivian
indigenous leader, hops hurriedly into a
car with tinted windows outside the city
ofSucre.“Wehavetobecareful—every-
thingistense,”hesaid.
Rightwing “resistance fighters” have
turned up to protest against Mr Rod-
ríguez at the sports complex where he is
to address supporters of Movement to
Socialism (MAS), the party of ousted
BolivianpresidentEvoMorales.
“He is the impersonation of Evo
Morales. We don’t want him here,” said
one,LuisValencia.
But questions over Mr Morales’s con-
tinuing influence in Bolivia affect more
than his conservative opponents. As an
election approaches, the former presi-
dent’s party is torn between loyalists
and a younger generation disenchanted
with their exiled leader and his contin-
uedgriponitsaffairs.
After weeks of assemblies across
Bolivia, MAS supporters chose as their
presidential candidate David Choque-
huanca, a former foreign minister and
ethnicAymara.MrRodríguez,anethnic
Quechua who is influential within MAS,
wastohavebeenhisrunningmate.
But from Buenos Aires Mr Morales
overruled the decision. He announced
his own nominee — Luis Arce, his UK-
educated former finance minister who
isofmixedrace—anddemotedMrCho-

quehuanca to be Mr Arce’s vice-presi-

dentialcandidate.

“Morales was never going to pick an

indigenous candidatebecause that

would mean someone to put him in the

shade,” said Arturo Murillo, the nteriori

ministerofthecaretakergovernment.

More than 30 people were killed in

riotsinBoliviaafterMrMoralesclaimed

to have won a fourth consecutive presi-

dential election in a poll in October that

was marred by fraud. Under pressure

fromthemilitary,themainunionfeder-

ation, and popular discontent, Mr

Moralesquit and fled, first toMexico

andthentoArgentina.

AyoungergenerationofMAS—which

is an amalgam of social and indigenous

movements — is gaining clout, backed

by grassroots supporters who want a

new start. But they are being hampered

by Mr Morales. Last month he called for

“armed militias ” to protect members

who say they are being persecuted by

the interim government, installed fol-

lowing the chaos of the October poll. He

laterretractedthecall.

“Such comments do not help us,” said

33-year-old Eva Copa, an MAS member

whobecameheadofthesenateamidthe

upheaval following Mr Morales’s depar-

ture.“I respect him a lot but I think it is

also important to be consistent with

one’sprinciples.”

Ms Copa has ignored Mr Morales’s

calls to boycott Bolivia’s caretaker pres-

ident, Jeanine Áñez, and has instead

focused on calming the situation and

helpingMASwintheelectioninMay.

“We are very angry at Evo. He keeps

making those statements from the com-

fort of Buenos Aires while we are here in

the front lines,” said a young MAS mem-

ber in La Paz who wished to remain

anonymousforfearofretaliation.

Mr Morales — who served three terms

as president and sought to override the

constitution by seeking a fourth — is

prohibited from standing againbut is

attempting a comeback as a senator. He

is subject toan arrest warrant, accused

ofseditionandterrorism.

Mr Morales had already ignoreda

defeat in a 2016 eferendum on whetherr

he should be allowed to seek a fourth

term last year. He was then accused

of trying to steal he election on Octobert

20throughwidespreadballotfraud.

In private meetings, Mr Rodríguez —

described by one senior MAS member

inexileas“ultra-pragmatic”—criticised

MrMoralesforignoringthereferendum

result and or not agreeing to go to af sec-

ond round ast year after it was clear thel

vote was disputed. Mr Rodríguez said

the crisis for MAS was “helping to give

ushumilityandreturntoourbase”.

Latest polls suggest 31.6 per cent of

voters support MAS. Analysts estimate

the leftist party can garner up to 40 per

centby May 3, including in rural areas

where it remains strong. Mr Arce and

MrChoquehuancawillfaceCarlosMesa,

a centrist who was Mr Morales’s strong-

est challenger in October with 17.1 per

cent. Candidates require at least 40 per

cent of the vote, and a lead of more than

10percentagepoints,towinoutright.

Ms Áñez polls at 16.5 per cent but her

popularity has grown and she could

unitethosewhoopposeMASinasecond

round. Luis Fernando Camacho, a fire-

brand civic leader from the eastern low-

lands of Santa Cruz who led the protests

againstMrMorales,pollsat9.5percent.

In the past, support from peasant

farmers, trade unions and urban

migrants gave Mr Morales three sweep-

ing presidential victories, allowing him

to survive a recall vote on his mandate

and change the constitution. But his

legitimacyhasnowbeenwrecked.

For Aldo Orellana from The Democ-

racy Center, a think-tank in Cocha-

bamba, the healthiest thing for MAS

would be “to distance itself from Evo”

and allow the new generation of more

conciliatoryleaderstotakeover.

‘We do see slower growth

having a negative impact

on overall credit quality’

Kenneth Ho, Goldman Sachs
At a gallop:
police officers
wearing masks
ride to check
residents in
remote areas of
western China
this week
TR/AFP/Getty ImagesS

South Korean authorities reported the

first death fromcoronavirus nd saida

infections had more than doubled, after

the country reported an outbreak among

church worshippers.

TheCenters for Disease Control and

Prevention (CDCP) said the outbreak in

Daegu, south-east of Seoul, had been

traced to a 61-year-old member of the

Shincheonji Church of Jesus who

attended a service several times before

testing positive. The Daegu mayor said a

further 90 worshippers were showing

some symptoms of the virus.

Seoul reported53 new coronavirus

infections, including 28 cases traced to

Shincheonji. That brings thenumber of

people infected in South Korea to 104.

The first confirmed case was a Chinese

woman who arrived in Seoul from

Wuhan, the centre of the outbreak.

The pastor of the sect told local media

about 1,000 people had attended the

same service in Daegu. The Shincheonji

church said it was investigating the

cases and taking preventive measures,

including replacing services and

meetings with online and home

gatherings. The church was closed on

Tuesday.

The Shincheonji church is known as a

pseudo-Christian sect with 200,

followers nationally. It was set up in 1984

by Lee Man-hee, who is revered as a

messiah by his followers.

The sharp increase in new cases has

renewed concerns over the spread of the

virus in South Korea after a lull in

reported infections last week.

Government officials said the pace of its

spread was “grave” and it would

strengthen quarantine measures.

President Moon Jae-inwarned of an

economic “emergency” arlier this week,e

saying the impact of the health crisis

could be bigger and longer lasting than

the 2015 Mers epidemic that killed 38

people in the country. South Korea is

estimated to have suffered an economic

loss of Won2.3tn from Mers, according to

the National Disaster Management

Research Institute.

“The confirmed cases seem to be just

the tip of the iceberg,” said Kim Woo-joo,

a professor of infectious medicine at

Korea University Guro Hospital. “You’d

better stay away from crowded events if

it is not essential.” Song Jung-a in Seoul

and Alice Woodhouse in Hong Kong.

Additional reporting by Kang Buseong

Seoul

confirms

first death

in country

Latin America. lection campaignE

Exiled Morales defies Bolivia’s younger generation

Ousted president maintains

grip on socialist party from

his base in Buenos Aires

Andrónico

Rodríguez:

the indigenous

leader was to

have been a

presidential

running mate

until Evo

Morales

stepped in

DaniloBalderrama/Reuters

South

Korea

FEBRUARY 21 2020 Section:World Time: 2/202020/ - 18:06 User:john.conlon Page Name:WORLD2 USA, Part,Page,Edition:USA , 3, 1