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Careless spending on islamic state campaign harms iraq finance minister

Iraq's reckless spending on its battle against Islamic State, including over $1 billion on Shi'ite militias accused of human rights abuses, is undermining efforts to keep the country functioning, the finance minister said. In an interview with Reuters, Hoshiyar Zebari, a Kurd who is mostly seen as a moderate, accused past and present Iraqi leaders of mismanagement, poor planning and failing to reach out to the only people he says can defeat Islamic State -- Sunni tribesmen. When the al Qaeda offshoot swept through northern Iraq in June, it faced hardly any resistance from the U.S.-trained army. The Shi'ite-led government turned to Iranian-backed militias after the army was humiliated by just several hundred ultra-hardline militants."Part of the economic and financial problem we have is this expenditure on the popular committees, on the militias on the army, on the contracts," said Zebari as he rolled prayer beads trough his fingers in his office and listed Iraq's challenges."The key areas where the budget was recklessly spent was on these military efforts without proper planning and on the volunteers."Iraqis who joined the fight against Islamic State are called volunteers and these include Shi'ite militias who appear to act with impunity in the name of taking on Islamic State. Asked how much cash was channeled to the militias, Zebari said: "I think they are paying their salaries, their food their clothes and weapons and so on. Over a $1 billion since June for the militias."While Iraqi leaders pinned their hopes on the militias, Sunni Muslims accused them of kidnapping, torturing and murdering members of their minority sect, charges they denied. Zebari's criticism of the government he is part of reflects the differences of opinion among officials that has made it harder to take decisions about tackling Islamic State. There has been a recent effort to narrow political differences. Ties between the Shi'ite-led government and the administration of the Kurdish region in the north have been strained. The Kurds criticize the Baghdad government for not paying the salaries of employees of the Kurdistan Regional Government. The central government is angry over Kurdish oil exports.

Zebari said both sides are trying to work out a compromise whereby the government would start paying salaries and negotiations would open on the Kurds sending oil export revenues to the national budget. MALIKI'S FAULT Zebari said the spending on militias was depriving Iraq of the chance to rebuild after many years of war, most recently the U.S.-led campaign against Sunni insurgents and al Qaeda, as well as battles against Shi'ite militias during the occupation. The Iraqi leader most closely associated with the militias is former Prime Minister Nuri al-Maliki, one of the most divisive figures to emerge from the U.S. occupation. Critics say Maliki, a Shi'ite, created the conditions that allowed Islamic State to flourish because his blatant sectarian policies alienated minority Sunnis who welcomed the militants in their towns and villages, and joined their side. Maliki denies the allegations.

Pressure from the United States, regional power broker Iran and Iraq's top Shi'ite cleric Ali al-Sistani forced Maliki to give up his fight to stay in office. They pinned their hopes on Haider al-Abadi, seen as conciliatory figure with a chance of winning over tribesmen in Sunni heartland Anbar province who once helped U.S. Marines defeat al Qaeda and could be persuaded to take on Islamic State. Zebari has his doubts, especially after the bloodshed last week when Islamic State executed over 300 members of the Sunni Albu Nimr tribe because they had resisted its territorial advances."He is trying to reach out to the Sunni tribes. But what people expect from him is action not words. He should move faster," said Zebari. "This is the view as we saw what happened recently with Albu Nimr for instance there is an urgency to move faster on this."Islamic State rounded up large numbers of tribesmen at will, executed them and dumped them in mass graves while there was no sense of urgency from the Baghdad government.

"The government could not properly supply them or reach them because the government actually had serious difficulties. They tried to provide some air support but it was limited, it wasn't a big deal. Lines of communications were lost," said Zebari."Many of the bridges had been blown up (by Islamic State)." The former foreign minister said finding a way to create an alliance between the government and the Sunni tribesmen should be the top priority in the fight against Islamic State. American air support is not enough, said Zebari."Air strikes alone cannot solve the problem. There needs to be local forces on the ground. Only the Sunni tribes are the ones who can deliver with government support," said Zebari, who is a Kurd. Zebari seemed more optimistic about Baghdad, which would be the biggest prize for Islamic State militants who have threatened to march on the capital. He said Islamic State is no longer a threat to the capital but he acknowledged the group had many sleeper cells and supporters there and a steady supply of mostly foreign suicide bombers. The battle against Islamic State is expected to drag on, draining the budget over the long term even though Iraq is an OPEC oil producer. The government was not able to present a 2014 budget to parliament but has promised to detail spending at a later date."We promise that for 2015 we must present a proper budget for the country," said Zebari. The bottom line, Zebari said, is Iraq can't move forward until Islamic State is defeated."Islamic State has a clear plan of action. It wants to establish, reinforce its caliphate. The country cannot function while Islamic State is in control of several provinces."

Lpc prolonged fed rate hike wait discourages loan fund buyers

Retail investors will keep dragging their heels before returning as consistent buyers of floating-rate loan funds, now that surprisingly weak U.S. jobs growth has further prolonged the wait for Federal Reserve rate hikes, analysts and investors said. Pegging demand to the prospect of rising interest rates, retail buyers have been sporadically adding to leveraged loan funds in anticipation of the Fed’s follow-up to the December 2015 hike, which was the first in almost a decade. April’s tepid U.S. jobs report, however, dashed expectations for a June Fed move. In response, most economists now expect a hike no sooner than September, according to a Reuters poll. The soft economic indicator also prompted some banks to lower their interest rate hike expectations for this year to one from two before the report.“With Fed rate hikes moving at a snail’s pace, a primary motivator for investors seeking inflation protection - the rate reset feature of loans – is greatly diminished,” said Jeff Tjornehoj, head of Americas Research at Lipper. Retail investors yanked US$6.4bn from loan mutual funds and exchange traded funds this year through May 4, the latest Lipper data show, on the heels of withdrawing US$21.6bn in full-year 2015.“While we’re very unlikely to see the US$20bn-plus outflows of the previous few years, these funds will continue to struggle with redemptions this year,” said Tjornehoj.

High-yield bond funds, in contrast, have pulled in US$10.5bn this year after losing US$16.4bn in 2015. TOO FAR TOO FAST Loans in the secondary market have jumped since mid-February on the back of bargain-hunting as oil and stock prices gained, but have been treading water for the past three weeks. The average bid in the SMi100, the 100 most liquid loans, was 98.1 cents on the dollar on May 9, wavering little since April 21. The bid stagnated after spiking quickly from a recent low of 95.3 cents on February 22.

The rally stalled on the new signs reminding market players of the long-playing story: slow U.S. economic growth signaling low interest rates for even longer. Without imminent rising rates, floating-rate loan prices have escaped a big drop because of increased demand from Collateralized Loan Obligation (CLO) funds, the biggest leveraged loan buyers, and dealflow that has been slowed by volatility and economic uncertainty. Institutional loan issuance sank to a four-year low of US$39bn in the first quarter, according to Thomson Reuters LPC data.

CLO creation, although growing, will be sharply lower than in 2015, limiting the prospect of further loan price increases. Wall Street forecasts span from US$35bn to US$60bn of CLO volume, sharply below US$98.5bn last year. The loan rally, similar to high-yield bonds, has “run too far too fast, and will likely undergo a correction,” according to BofA Merrill Lynch Global Research. However, loans ultimately will post positive returns this year, outperforming negative returns on high-yield bonds, the analysts wrote in the May 11 report.“As investors are faced with increasing credit risk on the back of poor high-yield fundamentals and a deteriorating economy, we see them migrating up the capital structure into the relative safety of senior secured paper,” they said.