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Scandals in French Politics

Chris Kuehl, Ph.D.

The new Macron government has had to face a crisis already, although it is one that should be weathered with minimal damage. The decision was made to combine forces with a smaller centrist party at the end of the National Assembly elections.

The MoDem party has been around for a while and would bring 42 seats to the coalition. The Macron party has enough seats to form a government without them, but the total could have been more impressive. Unfortunately, the MoDem politicians are now under investigation for misuse of funds and nepotism.

In the old days, they likely would have fought to stay in their positions, but the mood of the French voter is different now. It was financial scandal that derailed the campaigns of François Fillon and even Marine Le Pen. President Emmanuel Macron has acted swiftly by demanding the resignations of people he just appointed to the government.

One of the concerns about this brand-new party is that not much is known about many of those who ran for the National Assembly; there was not a lot of time to get the candidates vetted. The fear is that there are potential land mines out there, and some of these new members will have skeletons in their closets.

Right now, Macron is acting quickly to remove anyone tainted by scandal, but, at some point, those in his government will wonder if he ever has their backs. If there are people removed simply due to allegations, there will be an incentive for the opposition to accuse people of things even when they know the accusation is groundless. This has long been a tactic of the National Front. Most expect they will further employ smear campaigns to keep Macron off balance. He will have to take a stand at some point and defend the people he has put in place.

The good news for Macron is that many of those who ran on his ticket are not politicians and have no track record. That doesn’t mean that they are without personal challenges, but these will affect the French voter less than what happens when a politician is perceived as corrupt.

Those who have been brought in do not know Macron well. That allows him to be somewhat picky about the inner circle. His wife, Brigitte Macron, has been the most important advisor in his career. She wields a tremendous power in terms of who gets access to him. She sizes people up very quickly and her assessments are almost always dead accurate.



Digital Technology and Cross-Border Payments

Technological advancements could result in more efficient and less-costly cross-border payments, according to an International Monetary Fund (IMF) staff discussion note (SDN) released June 19. (SDNs highlight “policy-related analysis and research being developed by IMF staff and are published to elicit comments and to encourage debate,” the IMF says. SDNs “do not necessarily represent the views of the IMF, its executive board or IMF management.”)

The paper, Fintech and Financial Services: Initial Considerations, reviews recent developments in digital technology known as fintech and assesses their impact on various financial services.

With regard to cross-border payments, the new technology, including distributed ledger technology (DLT) and cryptocurrencies, could result in “better and cheaper” services as well as lower anti-money laundering and anti-terrorism compliance (AML/CFT) costs.

The paper’s authors recommend “nimble, experimental and cooperative” policymaking for these new technologies, while maintaining trust “in an evolving financial system. … Rules and standards will need to be developed to ensure the integrity of data, algorithms and platforms.”

The analysts present various ways users could apply distributed ledger to cross-border payments processes. For example, SWIFT aims to use DLT “to improve the speed, transparency and end-to-end tracking of cross-border payments, including reconciliation with invoices.” They also state that correspondent banks could “participate in a shared permissioned DLT platform to automate the tracking of payments and to optimize liquidity and risk management.”

They find that the biggest gains would be seen in efficiencies—with little impact on market structure. Lower fixed back-office costs could result in new types of services providers, but “many of the other barriers to entry to correspondent banking would remain.” They also say that correspondent bank payments would be more transparent and traceable, and that invoice reconciliation costs would be lowered, but that the impact on speed and costs for end users remains unclear. For example, correspondent banks might not pass on cost savings.

Lower compliance costs, however, could result from the combination of DLT with other technologies. “In particular, know-your-customer utilities and digital identity can facilitate information sharing and help reduce the cost of compliance, including with respect to AML/CFT regulation and sanctions-related controls.”

DLT could facilitate using “registries of standardized customer information, along with their digital identities, which could facilitate access to, and sharing of, customer information.” Regulations and compliance requirements, however, affect whether financial institutions could outsource customer due diligence.

“The use of DLT in payments systems also raises questions about settlement finality,” the paper finds. “To ensure legal certainty, jurisdictions have enacted legislation that prohibits the reversal of payments that are deemed to have been completed by the payment systems’ rules (CPSS 2005). These rules have worked well in traditional domestic and cross-border payments systems but may not in a distributed network based on technologies that provide only probabilistic finality (rather than settlement finality at a definitive point in time).”


Survey Looks at Credit and Collections Behavior in Asia

Payment delays from customers in China occur for a variety of reasons, according to credit professionals who participated in FCIB’s June International Credit and Collections Survey, which looks at several countries in Asia.

Billing issues, shipment problems, cash flow, customer practices and cultural norms were cited as some of the causes, as well as decreases in demand, regulatory issues and currency regulations.

Nearly half of the survey takers who do business in China use credit applications to confirm or finalize sales prior to shipping, and almost 85% use purchase orders with just more than 60% using sales contracts. “We run an online payment gateway; hence, we will only allow the merchant to onboard with us once they agree to our recommended collaterals or they are financially strong,” a credit professional noted. Another one has customers pay the full amount prior to shipping.

Participants had a lot of advice for others interested in selling into China. “Read the small print in the contracts,” a credit manager advised. “Make sure terms are clear and void any questionable clauses.”

From time to time, the government can slow or stop outbound remittance, another warned. “There are frequently efforts to renegotiate transactions repeatedly, right up to the point that final payment is made.” Several promoted getting a “good” local agent. Yet another recommended caution. “Don’t rush to provide credit. It is becoming more of an expectation than in the past, but prepayment is still relatively common.” After a customer prepays a few orders, “review the credit application and run a credit report using trusted credit reporting agencies,” another said.

At least one does not consider letters of credit secure transactions because the government controls most banks in the country. One survey taker proposed that credit professionals discretely confirm letters of credit, if possible. In addition, don’t rely on a customer’s financial report because it uses different versions for different parties, such as government or trading partners.

The survey also looks at other credit and collection behaviors, such as payment methods and terms, and includes results on Indonesia, Malaysia, Republic of the Philippines and Thailand. FCIB members can access the full results through the Knowledge & Resource Center.

The July Credit and Collections Survey on Greece, Italy, Poland, Spain, and the United Kingdom is now open. Nonmembers who participate will receive full survey results delivered via email. The survey closes July 6.


Election Calendar

June 26 – Mongolia, President
July 2 – Senegal, Senegalese National Assembly
Aug. 4 – Rwanda, President
Sep. 11 – Norway, Norwegian Parliament
Sep. 23 – New Zealand, New Zealand House of Representatives
Sep. 24 – Germany, German Federal Diet
Oct. 10 – Liberia, President
Oct. 10 – Liberia, Liberian House of Representatives
Nov. 19 – Chile, Chilean Chamber of Deputies
Nov. 19 – Kyrgyzstan, President
Nov. 19 – Chile, Chilean Senate
Nov. 19 – Chile, President
Nov. 26 – Honduras, Honduran National Congress
Nov. 26 – Honduras, President


Global Roundup

U.K. offer to EU citizens 'very fair, very serious'. British Prime Minister Theresa May said on June 23 the offer she had made on the rights of EU citizens to live in Britain after Brexit was very fair and very serious and that her government would set out more detailed proposals on June 26. EU leaders greeted the offer made during a summit in Brussels late on June 22 with a degree of skepticism and said many questions remained. (Reuters)

Saudi king names son as heir to throne in shake-up. Saudi Arabia’s Deputy Crown Prince Mohammed Bin Salman replaced his cousin as heir to the throne, a shock announcement that consolidates the 31-year-old leader’s power in the world’s biggest oil exporter. The king’s decision to elevate his son, who already controlled the defense, oil and economy portfolios, was supported by 31 out of 34 members of the Allegiance Council, made up of senior members of the ruling Al Saud family. (Business Mirror)

New data shows U.S. loss from TPP withdrawal. The U.S. will lose an estimated US$3.1bn from its exports due to its Trans-Pacific Partnership (TPP) withdrawal, a new study shows. Meanwhile, the remaining 11 members would enjoy marginal gains from the U.S.’s TPP withdrawal, with Mexico and Canada set to benefit most. (Global Trade Review)

Arab states issue ultimatum to Qatar: Close Jazeera, curb ties with Iran. Four Arab states have issued an ultimatum to Doha to close Al Jazeera television, curb ties with Iran, shut a Turkish base and pay reparations, demands so far reaching it would appear to be hard for Doha to comply.  Saudi Arabia, Egypt, Bahrain and the United Arab Emirates have sent a 13-point list of demands apparently aimed at dismantling their tiny but wealthy neighbor's two decade-old interventionist foreign policy. (Reuters)

Global bank—Capital talks falter as Germany hardens dissent. Germany stiffened its opposition to a proposed revamp of global bank capital standards, renewing a confrontation with the U.S. and putting at risk a deal on rules intended to help prevent another financial crisis. After opening the door earlier this year to an agreement in the Basel Committee on Banking Supervision, Germany has changed tack and closed ranks with France, the staunchest critic of proposed measures to stop banks gaming the rules known as Basel III. (HSN)

Trump’s new Cuba policy: Not much change in substance. With his announcement on June 16 of a new United States policy toward Cuba, President Donald Trump attempted to walk a fine line between continued engagement with and support for the Cuban people while strengthening the existing U.S. embargo with respect to entities controlled by the Cuban government and military. (Global Trade Magazine)

Why Erdogan is flooding Turkey’s economy with credit. In Turkish President Recep Tayyip Erdogan’s hunt for domestic enemies, even the invisible hand of the marketplace is getting cuffed. With elections just over two years away and his approval ratings dipping below 50%, Erdogan isn’t leaving his political fate to the vagaries of the free market. Instead, he’s risking his country’s future stability by flooding the economy with credit to engineer short-term growth, analysts say. (HSN)

The British pound isn’t the world’s worst currency in the one year since Brexit, but it’s close. Exactly one year ago on June 23, the U.K. voted 52% to 48% to leave the European Union after more than 40 years of membership. For now, you could argue that not much has changed—the U.K. won’t actually leave the EU until March 2019 and it’s still not even agreed what Brexit ultimately means. But there’s one big change that’s impossible to dispute: the effect of the vote on the pound. (Quartz)

Fitch: Saudi Succession Assists Reform, Adds Foreign Policy Risk. Saudi King Salman's decision to name his son Mohammed bin Salman as crown prince has reduced uncertainty about the royal succession and reduces the risk of slippage in the country's "Vision 2030" reform program, Fitch Ratings says. However, the new crown prince has already made Saudi foreign policy less predictable and, in Fitch's view, his promotion could raise tensions with Iran further. (Fitch)

What is the most likely outcome of the Qatar crisis? The diplomatic crisis resulting from sanctions against Qatar raises fresh questions concerning the political and economic environment in the Gulf. (Global Risk Insights)


Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations