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Brazil’s economy is in surprisingly good shape following last year’s devaluation. Now the challenge is to make further progress in reducing the fiscal deficit, to overhaul the tax system and make reforms in pensions, health and education. It’s a tall order and Brazil is not noted for making swift progress but the direction is broadly correct.

As cash flows into the hands of high yield bond investors in Europe, the sector is performing strongly and new issues are being snapped up. There has been a curious reversal of roles between European and US buyers. US investors used to provide a comforting guarantee of success for European deals. Now, as the US high yield market turns bearish, Europeans fear that the presence of desperate US buyers will infect deals with the taint of failure.

EU membership has its down-side. As eastern Europe seeks to join up, its raw capitalism could be stifled by all the rules and regulations. Recovering from years of central planning the last thing these economies need is dirigisme and subsidies, Brussels-style. But that’s what they are about to get. Although it has failed to reform itself, the EU insists that new entrants implement all its 80,000 pages of directives. Some candidates are so enthusiastic they also want to adopt the euro. Economists warn that these ambitions could cost them dearly, killing off enterprise and making economic management difficult if not impossible.

The spectacular revival of the samurai, Euroyen and global yen markets, begun in the second half of 1999, has continued this year and shows no sign of abating. Bankers expect the queue of corporate and sovereign borrowers to remain long for the rest of the year and for Japanese buyers and international investors moving into yen bonds to keep on buying corporate and even emerging market issues on the primary and secondary markets.

They arrive, a little disorientated, pale and gangly, on the cusp of adolescence and adulthood, secretly tingling with excitement and nervousness, but desperately trying to project an air of worldliness and an attitude of "been there, done that, got the T-shirt".

The development of banking in Egypt depends heavily on government action. Privatization is moving slowly, important legislation has been delayed and there are no signs that the overvalued Egyptian pound will be devalued. The equity market is also stagnant, with few private companies making new listings.

Methodology

Moscow head, EBRD