RPT-Mexican tax reform to avoid sales tax on food, medicine-officials

Sat Sep 7, 2013 11:53pm EDT

MEXICO CITY, Sept 7 (Reuters) - The Mexican government has decided against levying a controversial sales tax on food and medicine as part of a key fiscal reform it will present on Sunday, officials in the ruling Institutional Revolutionary Party, or PRI, said on Saturday.

The government is aiming to boost Mexico's weak tax revenues by around 4 percentage points of gross domestic product (GDP), and was seriously considering widening the application of value added tax (VAT) to include food and medicines.

This was viewed as a risky measure politically though because of the impact it would have on the poor, who make up roughly half of the population in Latin America's No. 2 economy.

The economy suffered a surprise contraction in the second quarter, prompting fears higher taxes would drag on an eventual recovery.

Recent street protests over other reforms aiming to open up the oil industry to foreign capital and overhaul a failing education system undertaken by President Enrique Pena Nieto have stirred fears of social unrest in Mexico, prompting a more cautious approach.

Earlier on Saturday, Finance Minister Luis Videgaray briefed some PRI members of Congress on the planned fiscal reform.

Afterwards several PRI officials, speaking on condition of anonymity, told Reuters that the government had decided to opt against levying VAT on food and medicine.

Economists say broadening the application of VAT would be one of the most effective ways of raising tax revenues, and the PRI in March changed its manifesto to end the party's longstanding ban on imposing the levy on food and medicine.

The government has never said explicitly it would apply VAT to food and medicines but had not ruled it out either.

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UPDATE 2-Italian government hopes to avoid political crisis

Sat Sep 7, 2013 3:33pm EDT

* Economy minister: Crisis would put fiscal goals at risk

* Warns of ruinous credibility loss if deficit target missed

* Berlusconi appeals to European Court of Human Rights

By Giancarlo Navach

CERNOBBIO, Italy, Sept 7 (Reuters) - Italian government leaders expressed hope on Saturday that the fragile ruling coalition could avoid a breakdown that would threaten strained finances and risk wrecking the trust won during months of painful austerity.

"I am confident, I believe there won't be a crisis," Economy Minister Fabrizio Saccomanni told reporters on the sidelines of a business conference in the northern town of Cernobbio.

He warned that Italy risked a "totally unforgivable loss of credibility" if political turmoil disrupted efforts to keep its public deficit within European Union limits and renewed doubts about its budget stability.

There have been weeks of tension over the political future of centre-right leader Silvio Berlusconi after Italy's top court found him guilty of being at the centre of a vast tax fraud conspiracy at his Mediaset broadcasting empire.

Allies of the former premier have said they could pull out of Prime Minister Enrico Letta's unwieldy left-right coalition if centre-left members of a Senate panel vote to strip Berlusconi of his seat in the upper house of parliament.

However, senior allies of the 76-year-old media billionaire have struck a more conciliatory tone in the past two days, following a statement from President Giorgio Napolitano warning parties against provoking another crisis.

"The country needs responsibility. We have guaranteed this sense of responsibility today," Renato Schifani, the floor leader in the Senate of Berlusconi's People of Freedom (PDL) party, told SkyTG24 television.

The cross-party panel, in which the centre-left Democratic Party (PD) holds the largest number of seats, meets on Monday but it may take weeks for the complicated procedure that could lead to Berlusconi's expulsion from parliament to be completed.

Letta told the BBC in an interview that he was confident the government would now carry on.

But political risks have weighed on Italian government bonds in recent sessions and analysts say Rome may see weaker demand and be forced to pay higher yields at an auction next week if investors believe the government risks collapse.

A breakdown of the coalition, raising the prospect of early elections at a time when Italy should be planning next year's budget, would push yields on Italian government bonds further up, increasing debt payments, Saccomanni warned.

"Fresh tensions on government bonds would make it more difficult (for Italy) to manage the budget deficit and keep it within the 3 percent limit," he said.

COURT OF HUMAN RIGHTS

As the manoeuvring continued, Berlusconi's lawyers filed documents for an appeal to the European Court of Human Rights in Strasbourg to have the law under which he could be expelled from parliament declared invalid in his case.

The appeal says that the so-called "Severino law", which makes politicians convicted of serious offences ineligible for parliament, should not apply to Berlusconi because it was only passed last year, after the events over which he was convicted.

The centre-left Democratic Party has rebuffed PDL efforts to delay the Senate panel hearing while a separate appeal to Italy's constitutional court is heard, and party leaders appeared to rule out any accommodation.

"If anyone decides to pull the plug on the government if Silvio Berlusconi is declared ineligible as senator, they will have to take responsibility before the country and the international community," PD leader Guglielmo Epifani told a party conference in Genoa.

Berlusconi allies have accused the PD of colluding with what they call leftist magistrates to eliminate the media tycoon politically and say any crisis would be its fault.

The friction within the coalition, established after the inconclusive election in February that left no party able to form a government, has reawakened memories of 2011 when Italy came close to dragging the euro zone into a life-threatening crisis.

The euro zone's third largest economy is still stuck in its longest postwar recession and is facing rising headwinds as it fights to keep its deficit under the EU's limit of three percent of gross domestic product.

The main gauge of investor confidence, the risk premium demanded by investors for Italian 10 year government bonds over safer German Bunds, has crept up steadily although it is still well off the dramatic levels seen two years ago.

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Missouri governor bucks trend, campaigns for tax-cut veto

By Kevin Murphy

KANSAS CITY, Mo., Sept 8 | Sun Sep 8, 2013 1:00am EDT

KANSAS CITY, Mo., Sept 8 (Reuters) - It is an uncommon sight in American politics - a governor barnstorming his state to rail against tax cuts.

But Missouri Governor Jay Nixon is on a campaign-style crusade to win public support for his veto of an income tax cut bill, even as state taxes nationwide are trending downward.

Nixon, a Democrat, has taken his case to towns across the state, arguing that corporate income tax cuts that are meant to draw business to Missouri would in fact harm schools and mental health services. Nixon has made 29 appearances since July 15 to defend his position.

Missouri lawmakers will meet Wednesday to vote on a veto override, which takes a two-thirds majority in the House and Senate, and even some Republicans admit that Nixon may win the fight.

"I want to leave this state better than I found it, and this bill would greatly limit that ability," said Nixon, who began his second four-year term in January and cannot run again due to term limits, in an interview. He calls the bill "flawed policy" that will not generate new business or jobs.

The House faces the bigger task as it needs 109 votes to override the bill, which got 103 votes in May. Nine lawmakers were absent, three of them Democrats.

"I find it very odd that the governor has spent 90 percent of the summer working against a tax-cut bill that passed with a super majority," said Missouri House Speaker Tim Jones, a Republican, in an interview. "He seems to be going against the stream."

If Nixon wins the tax battle, his strategy may become an interesting blueprint for Democrats in other conservative states who face a drive from Republicans and business groups for tax cuts.

The May tax-cut vote in Missouri broke largely along party lines in the Republican-dominated chamber, but some lawmakers are feeling strong local pressure to back Nixon, said Rep. T.J. Berry, sponsor of the bill in the House.

Berry said Republicans are fighting an uphill battle to get the two-thirds. "The percentage chance of an override is small, but we are still working at it," he said.

Missouri Republicans sought the tax cuts in response to reductions in other states, especially neighboring Kansas in 2012. The bill's supporters say Missouri must have a more attractive corporate tax climate to compete.

Missouri lawmakers are not alone in trying to reduce taxes this year. About $1.3 billion in tax cuts were approved by states in 2013, according to the National Conference of State Legislatures. While that is just .02 percent of total tax revenue, seven states - Alaska, Arizona, Iowa, Maine, North Dakota, Iowa and Wisconsin - cut taxes by more than 1 percent, according to the NCSL.

"This is the most activity we have seen in a long time," said Mandy Rafool, fiscal affairs specialist at the NCSL.

Missouri's effort to keep pace with Kansas is probably noticed in other states, said George Connor, a political science professor at Missouri State University in Springfield.

"It's a modern-day border war on who can lower taxes most," Connor said. "What happens here is on the radar because the same phenomenon may occur in other states, especially as industrial bases of states disappear."

The Missouri bill would cut the corporate tax rate in half - to 3.125 percent over 10 years. It would halve the income taxes a business owner declares on a personal return over five years. The highest rate for all taxpayers would drop from 6 percent to 5.5 percent over 10 years.

Nixon's efforts to veto the bill have drawn a barrage of television and radio ads from advocacy groups, urging residents to express their views to lawmakers before the vote on Wednesday.

More than 80 school boards in Missouri have passed resolutions supporting the veto, according to the governor's office. They argue that revenue available for education would decline, forcing them to gut programs.

"When superintendents in these districts say that the bill will devastate a community, that goes a long way," said Sean Soendker Nicholson, executive director of Progress Missouri, a liberal organization that opposes the tax cuts.

Nixon said that several thousand teachers' jobs would be in jeopardy if the bill passes, resulting in larger class sizes and less effective schools. A major financial backer in the drive to block the tax cuts is the Missouri National Education Association, a teachers union.

A coalition called Grow Missouri comprises pro-business groups such as the Missouri Chamber of Commerce. It says the tax cuts will, over time, boost state revenue by drawing more business, jobs and tax dollars.

"The governor fails to recognize that this bill will put us in a position to grow revenues, protect education funding and even enhance it," said Anne Marie Moy, coalition spokeswoman.

Nixon rejected a request from Republican leaders to call a special session of the legislature for the purpose of exploring a compromise bill.

"When I sit across the table from business folks, they are not saying 'I need a break on my taxes,'" Nixon said. "What they are saying is we need trained workers and we need people with degrees."

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Greek PM says recession in 2013 to be less than expected

ATHENS, Sept 7 | Sat Sep 7, 2013 4:32am EDT

ATHENS, Sept 7 (Reuters) - Greek Prime Minister Antonis Samaras said on Saturday the country's economy would contract by less than expected in 2013 before returning to growth next year.

"The recession this year will be smaller than forecast," Samaras said at an annual trade fair in the second biggest city of Thessaloniki. Greece's European Union and International Monetary Fund lenders project the economy will shrink 4.2 percent this year.

Samaras's remarks came a day after data showed Greece's economy shrank 3.8 percent in the second quarter, helped by a rebound in tourism, the smallest annual decline in nearly three years.

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UPDATE 1-Greek premier expects less acute recession this year

Sat Sep 7, 2013 5:27am EDT

* PM Samaras says 2013 slump to be milder than forecast

* EU/IMF lenders project 4.2 percent contraction in 2013

ATHENS, Sept 7 (Reuters) - Greece's recession will be less acute than expected this year, the country's prime minister said on Saturday, helping Athens meet the targets of two multi-billion-euro foreign bailouts keeping its economy afloat.

Greece's European Union and International Monetary Fund lenders project the economy will shrink 4.2 percent this year after contracting 6.4 percent in 2012.

But Antonis Samaras said the 2013 slump would be "smaller than forecast."

In a sign the country's six-year recession may be bottoming out, data earlier this week showed Greece's economy shrank 3.8 percent in the second quarter, helped by a rebound in tourism. That was the narrowest annual decline in nearly three years.

Speaking at a trade fair in Greece's second city of Thessaloniki, Samaris also said the country would beat this year's main fiscal target of achieving a primary budget surplus, allowing it to seek further debt relief from its euro zone partners as agreed with its lenders last year.

The primary budget balance excludes debt financing.

Excluded from financial markets since 2010, the country has been kept afloat and inside the euro zone with over 200 billion euros in rescue loans from the European Union and the International Monetary Fund.

The euro zone is likely to agree to further international financing in November. The IMF and Greece estimate that Athens will need an extra 10-11 billion euros in 2014-2015.

Positive growth rates and a primary surplus would allow Athens to return to bond markets, Greek officials have said.

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China, Kazakhstan to ink deals worth $30 bln on Saturday

ASTANA, Sept 7 | Sat Sep 7, 2013 5:36am EDT

ASTANA, Sept 7 (Reuters) - Kazakhstan and China will sign 22 agreements on Saturday worth a total of around $30 billion, including several deals in the key oil and gas sector, Kazakh President Nursultan Nazarbayev said.

"Among these (agreements) there are large-scale ones, including on cooperation in the oil and gas sector, which are essential for us," Nazarbayev told a briefing after meeting with China's President Xi Jinping.

"We have reached an agreement on building a new oil refinery (in Kazakhstan), which we need so much," Nazarbayev said, without giving further detail.

Xi said the two sides had agreed on China's shareholding in Kazakhstan's giant Kashagan offshore oil project. Kazakh officials told Reuters earlier on Saturday that the package of agreements would include one on the purchase of an 8.33 percent stake in Kashagan by China's state oil firm CNPC for around $5 billion.

One of the draft agreements, obtained by Reuters, would guarantee loans from The China Development Bank and The Export-Import Bank of China - worth respectively $3 billion and $5 billion - to Kazakhstan's state holding Baiterek, which is charged with promoting innovation and industrial projects.

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UPDATE 1-Egypt says prepared to repay Qatari loan in days if necessary

Wed Sep 4, 2013 6:32am EDT

CAIRO, Sept 4 (Reuters) - Egypt is prepared to repay within days $2 billion that Qatar deposited with Egypt's central bank in May if talks to convert the funds into bonds do not succeed, a central bank official said on Wednesday.

"This supposedly should be moved to a three-year bond, and still they have not finished it," said the official, who asked not to be named. "If it's not done, we will repay it. We are ready for this."

The state-run al-Ahram newspaper said that the Qatari government had asked that the conversion be delayed.

Cairo's relations with Qatar have deteriorated since the Egyptian army deposed President Mohamed Mursi on July 3. Qatar has been a firm backer of Mursi's Muslim Brotherhood and lent or gave Egypt $7.5 billion during the year he was in power.

In May, Egypt converted $2.5 billion of the Qatari loans into 18-month bonds at 4.25 percent interest, and on July 1 it converted another $1 billion into three-year bonds at 3.5 percent interest. The bonds were listed on the Irish stock exchange.

The central bank official said talks with the Qataris on converting the $2 billion deposit into three-year bonds would continue for another week.

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RPT-Fitch Places Nokia's 'BB-' Ratings on Rating Watch Positive

Wed Sep 4, 2013 6:17am EDT

Sept 4 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has placed Nokia's Long-term Issuer Default Rating (IDR) and senior unsecured ratings of 'BB-' on Rating Watch Positive (RWP), following the announcement of the disposal its Devices & Services (D&S) business to Microsoft Corporation (AA+/Stable).

The RWP takes into account the significant improvement envisaged by Fitch in Nokia's operating and financial profile following the closure of the proposed deal, which is expected in Q114. A business that will incorporate the Nokia Solutions & Networks (NSN) equipment business, Nokia's patent portfolio and its locations based business, is currently performing profitably, generates positive free cash flow and is expected by Fitch to maintain a strong capital structure, including a significant net cash position. Management's desire to see the company return to investment grade supports an expectation that financial policy will evolve cautiously.

KEY RATING DRIVERS

Removing Handsets Weakness

The sale of the D&S business brings to a close a period of extreme stress in the credit profile of the handset industry's former leading manufacturer - at one time responsible for close to 40% handset unit volumes on a consistent basis.

The pace of industry change, the accelerated advent of the smartphone and dominance of Apple's iOS and Google's Android as the industry's leading operating systems have seen Nokia's handsets business increasingly marginalised. This business has recorded significant losses and driven material weakness in the company's cash flows.

NSN Underpins Credit Profile

The company's NSN equipment business, has proven increasingly resilient, posting positive (non-IFRS) operating income for the past five quarters and generating positive cash flow for the last seven quarters. The buyout of its joint venture partner closed in August 2013, and in Fitch's view was a credit positive given the strongly improved performance of this business. Performance is based on a strategic shift toward mobile networks and markets where management felt stronger margins could be generated. The key for management will be to stabilise revenue and share trends (which have been declining) while continuing to deliver margin and cash flow performance.

Pro-forma Performance

Pro-forma for the disposal the remaining business generated a non-IFRS operating margin of 8.5% in 2012 and 12.1% in H113, a performance underpinned by the NSN business. Combined with a commitment to a conservative balance sheet, this performance is consistent with a higher rating than the current 'BB-'. Where the rating settles will largely depend on Fitch's views of whether margin and cash flow can be sustained over the medium term, importantly taking into account prospects for NSN to maintain and improve market share in an extremely competitive equipment market.

Ratings Upside

Fitch expects that the closure of the disposal is at a minimum likely to lead to an affirmation of the current ratings at 'BB-' with a Stable Outlook or a potential one-notch upgrade. Post disposal, Nokia's credit profile will be driven predominantly by NSN. It will be important for Nokia to prove the sustainability of its current margin and cash flow profile amid an acutely competitive industry in order to achieve its longer-term ambition.

RATING SENSITIVITIES

Positive: Future developments that could lead to positive rating actions include:

Closure of the D&S disposal along with signs the margin and cash flow profile currently presented by Nokia on a pro-forma basis are sustainable.

Any positive action would be predicated on clarity over management's expectations for the company's long-term capital structure. Fitch would expect this to continue to include a net cash position.

Negative: Future developments that could lead to negative rating action include:

Failure of the proposed disposal to complete within the timeline laid out by the company would be likely to lead, at a minimum, to the assignment of a Negative Outlook on the current ratings, subject to ongoing performance at both NSN and the D&S division.

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EMERGING MARKETS-Central bank moves ease pressure on currencies

By Sujata Rao

LONDON, Sept 4 | Wed Sep 4, 2013 6:35am EDT

LONDON, Sept 4 (Reuters) - Central bank action lifted some emerging market currencies off lows on Wednesday but higher U.S. yields and the likelihood of military action against Syria kept the sector under pressure.

Emerging stock markets were flat after Tuesday's U.S. manufacturing data supported the view that the Federal Reserve would start rolling back stimulus at its mid-September policy meeting.

That has boosted U.S. 10-year yields by almost 10 basis points since the start of the week and, as the IMF stressed in a paper for this week's Group of 20 summit, holds substantial risks for the developing economies who have profited from the flood of dollars over the past year.

Limited U.S. strikes to punish Syrian President Bashar al-Assad for his suspected use of chemical weapons against civilians are also looking likely and a resulting oil price spike would be an added headwind for energy importers such as Turkey and India

"We are going to deal with geopolitical risk in the oil price in the next few quarters - disruption in Iraq, Libya, the story in Egypt," said Luis Costa, head of CEEMEA FX and debt strategy at U.S. bank Citi.

"It's great news for the few oil exporters like Russia and Nigeria, not fantastic news for the big energy importers, which are also experiencing some depreciation pressures."

The Indian rupee staged a rebound however, rising 0.7 percent after suspected heavy dollar selling by the central bank. That prevented it from hitting a new record low after data showed India's services sector shrinking in August to a four-year low

Dealers cited heavy intervention via state-run banks just before new central bank governor Raghuram Rajan, a former IMF chief economist, takes office.

Indonesia's central bank was also spotted providing dollar liquidity to selected lenders, keeping the currency's losses to around 0.4 percent, while the Turkish lira rose 0.13 percent as the central bank said it could provide dollars out of its gross hard currency reserves if required.

The rouble gained 0.2 percent after Russia's central bank head on Tuesday sent a warning about future inflation that cooled some expectations of a cut in interest rates next week.

DARK OUTLOOK

Derivatives markets point to more currency weakness ahead. Rupee six-month forward priced the currency at 70.8 per dollar, versus the spot price of 67.2. Rupiah six-month forwards weakened almost 1 percent to 12,330 per dollar, versus the spot rate of 11,100 .

On the Turkish lira, one-month risk reversals show increased demands for dollar calls, or bets the greenback will rise. Analysts say that is unsurprising, given interest rates look unlikely to rise.

"They seem very, very reluctant to raise rates, even in a situation with the lira going thru 2.4, 2.5 against the basket," Standard Bank analyst Tim Ash said.

"So the mix now is basically fixed or anchored policy rates, and willingess to live with a weaker currency."

The rand got some respite, firming 0.3 percent to the dollar after gold miners offered to moderate wage demands to limit the duration of a strike which is estimated to cost South Africa $35 million a day in lost output

On bond markets, South Korea was getting ready to launch a 10-year dollar bond for $1 billion which it hopes to price at 135 basis points above U.S. Treasuries. Kenya said it was in the processs of appointing advisors to lead a bond issue of up to $2 billion.

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

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UPDATE 1-White House budget talks with Senate Republicans break off

Fri Aug 30, 2013 6:26pm EDT

By David Lawder

WASHINGTON Aug 30 (Reuters) - Budget talks between the White House and a small group of U.S. Republican senators have reached an impasse, eliminating Washington's only active channel for resolving deep fiscal differences as key deadlines loom, senators and aides said on Friday.

A meeting on Thursday between the eight senators and White House chief of staff Denis McDonough failed to produce any movement toward a deal to reduce "unsustainable debt and deficits," said Senator Dan Coats, a Republican from Indiana.

"Although these discussions have been serious and candid, this week's meeting at the White House unfortunately proved that both sides remain far apart and the administration is unwilling to take the bold actions necessary to truly address our fiscal challenges and prevent this current pattern of governing from crisis to crisis," Coats said in a statement.

He added that the solution must include restructuring expensive federal benefits programs, reforming the tax code and cutting other unnecessary spending.

Republican Senate aides said that the group of senators led by Johnny Isakson of Georgia does not see any reason to continue the meetings because there is not enough common ground. One aide said the major sticking point was a refusal by the Obama administration to consider a larger deal that included cuts to entitlement programs such as Medicare.

"Instead, the White House wanted to try for a small deal contingent on revenue, which is a non-starter for Republicans," the aide said.

President Barack Obama and his Democrats have insisted that additional tax revenue, raised largely by closing tax deductions and credits for the wealthy, be part of any deficit-reduction deal.

Commenting on Thursday evening about the talks, a White House official underscored that condition.

"On matters related to the budget, the president has always been clear that closing tax loopholes that benefit the wealthy had to be part of any big deal. That's been clear for several years," the official said.

The Republican senators had been meeting regularly with McDonough, White House Budget Director Sylvia Mathews Burwell and other officials since June. The two sides had difficulty agreeing on the size of the U.S. debt problem, much less how to shrink deficits.

The end of the talks leaves Congress and the White House no clear way to reach agreements needed to extend funding for government agencies as the new fiscal year starts on Oct. 1 and to increase the $16.7 trillion federal debt limit. The Treasury Department said last week that it will need the borrowing cap lifted by mid-October to ensure that U.S. obligations are paid.

Republican leadership in the House of Representatives have yet to say how they will approach the looming fiscal deadlines, but a growing number of House Republicans say they will not support a stop-gap government funding measure unless it withholds money from the implementation of key elements of "Obamacare," the president's signature health care reforms.

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