The price of oil and steady high levels of spending are key factors behind the maintenance of Chavez power in Venezuela, according to Peter Hakim, president of the Inter American Dialogue. “If the price of oil keeps going up, he’s probably going to be able to sustain his authority in the country,” Hakim tells LatinFinance. The Venezuelan leader was severely weakened by the results of the December referendum and by the recent Andean crisis. “While Correa’s and Uribe’s popularity is soaring Chavez is sort of stuck in the mid 30’s,”Hakim says. Although Chavez is in a financially comfortable position, he could be running into trouble. “He has lots of money, has an enormously effective rhetoric and there’s still a lot of people unhappy in LatAm who like to hear that rhetoric,” Hakim says. “At times he can be a brilliant tactician but when you add it all together he hasn’t been making much progress.”
Yearly Archives: 2008
Merrill Loses Head of EM Research
Tulio Vera, the head of EM research at Merrill Lynch, and one of the region’s most widely respected economists, has left the firm, say people familiar with the matter. Vera was heard to have been crafting out a role for himself on the banking side of Merrill earlier this year, though the reasons behind the decision to do so, and what drove him to ultimately leave the firm, are unclear. Merrill announced a series of promotions earlier this year in EM research and strategy, though those mostly concerned individuals who would have reported to Vera. Vera is now heard to be weighing options at other shops. He joined Merrill in 1999 as head of EM research for EEMEA and LatAm. Prior to that he spent two years as a LatAm fixed income analyst ABN AMRO and before that he worked at Bear Stearns in fixed income research. The Chilean national was also a senior sovereign risk analyst at Moody’s and also held posts at the World Bank and IFC.
Microfinance Offers Haven for Investors
Microfinance is a stable, low risk business that offers a haven in volatile times, according to Helen Alexander, manager at ProCredit Holdings, a German company that controls several microfinance institutions in LatAm. “Microfinance has very low risk; very low default rates,” says Alexander. Stability in the sector will continue, Alexander says, even through the current markets crisis. Local and foreign capital markets for debt could find opportunities for participating in refinancing of microfinance, Alexander says, adding that transactions bring good returns with the added value of a social benefit. Alexander was a panelist in a seminar at IDB meetings in Miami that reviewed techniques, methodologies and technologies for the microfinance sector in LatAm.
Correction:
In an April 6 brief entitled, “Mexico’s TRIG Readies $1bn PF,” the bank on Peru LNG’s project finance was incorrectly stated. The leads are BBVA and Socgen.
IDB Miami – Social Diary
Monday April 6
7.00-9.00pm Citi Rumba Night. Nikki Beach, One Ocean Drive, Miami Beach
7.00pm Banco Mercantil, Vizcaya Museum, 3251 S. Miami Ave
IIF Sees Moderate Growth Deceleration
New data from the Institute of International Finance (IIF) predicts a moderate slowdown in growth across the board in LatAm through 2009. Regional expansion is forecast to ease to 4.4% in 4.1%, respectively, in 2008 and 2009, from 5.3% last year. This includes a decline this year to 2.7% in Mexico (versus 3.2% in 2007) and 4.6% Brazilian growth, from 5.4% last year. However, the IIF foresees a pickup in Mexico to 3.5% next year. Peru is set to fall from 8.5% in 2007 to 6.5% and 6.0% in the next few years, while the corresponding figures for Argentina are 8.7%, 6.8% and 4.2%, and for Colombia 7.1%, 5.1% and 4.5%. Inflation is meanwhile set to hit 6.4% this year, up from 6.0% in 2007 and 4.8% in 2006, says the IIF. It expects monetary policy to hold or tighten in coming months in Brazil, Chile, Colombia and Peru. Mexico meanwhile looks set to ease in the second half. “Most of the countries have shown solid growth in their economic activities and most of it comes from the domestic demand. Investors are optimistic,” says Carola Sandy, analyst at Credit Suisse.
Net Portfolio Flows Seen Rising: IIF
Net portfolio flows to LatAm almost tripled last year, but they should rise moderately in 2008, according to the Institute of International Finance (IIF). “The pace of these flows will depend not only on the fundamentals of the recipient country, but also on US economic prospects and global investor appetite for risk,” says the sell side lobby group. Overall, the IIF notes that LatAm is better placed to withstand external shocks, but “risks are increasingly slanted to the downside, especially given the accelerating public spending and narrowing trade surplus.”
US Slowdown May Hit LatAm Via China
A US slowdown could contribute to a decline of up to 2% in China’s economy for the coming year, albeit to a still high 9%, according to William Rhodes, senior vice-chairman at Citigroup. That in turn may have an effect on LatAm, as the region relies heavily on strong Chinese demand for commodities. The executive, who believes decoupling is a myth, notes the direct impact of the US slowdown on LatAm has been muted, but that reverberations in other markets may still find their way to the region. “If you break down the GDP figures for Latin America, you will see the importance of China to the region,” said Rhodes, speaking at LatinFinance’s 20th Anniversary Gala Dinner in Miami. “The Chinese are now concerned that in addition to the steps they’ve taken to cool down their economies, that if the economy in the US goes into a deep dive that this could impact them more than they thought earlier,” says the executive, echoing a frequently noted concern among economists at the IDB meetings. In the long run, however, Rhodes has a positive outlook on China, and points to changes in the government’s approach to sustainable development that will provide an important source of stability for LatAm.
Brazil Says Ready for Investment Grade
Brazil is prepared to make the leap to investment grade, according to a senior government official from the biggest LatAm economy. “Brazil is already ready to be recognized as a country with investment grade,” says Paulo Bernardo Silva, Brazil’s minister of planning, budget and management. “I see no reason for us not to have this international recognition and promotion.” He adds that external conditions may be delaying a decision by the agencies, but that Brazil will continue to focus on tax reform and other macro action needed to satisfy them. Silva also points to financial markets, which have long been pricing in a jump to high grade. “There is an important part of the market that thinks it’s a good time to invest in Brazil,” he says. Elevation to investment grade by at least two of the majors would open up a larger universe of investors and should lure more high quality, longer term money to the country. Silva, speaking at an Institute of International Finance lunch in Miami, also reiterated Brazil’s commitment to the Banco del Sur, particularly as a source of infrastructure finance.
Policy Concerns Even as LatAm Grows
Despite the expectation of continued growth in LatAm, there are concerns that deteriorating international conditions are reducing policymakers’ wiggle room. “Brazil’s biggest challenge is domestic,” Goldman Sachs economist Paulo Leme told an Institute of International Finance (IIF) panel Sunday, as the government has overstimulated the economy, and demand growth of 7% percent is not sustainable. He stresses the county’s need to rebalance macro policies and return to reform. Mexico, who has so far resisted raising rates, continues to offer a good opportunity on the interest rate side. For Traxis Partners fund manager Michael Hood, Mexico rates are attractive relative to others in the region, as it is a high-rated name that has cut not raised rates. However, Hood is concerned about the flow of capital slowing, which has “cooled” his group’s enthusiasm for investing in pesos. Hood sees credit growth having slowed in Mexico, even recently on the corporate side. This should offer a buying opportunity for Mexican credits, as US difficulties have already largely been priced in. “We think the quality of the macro policies may not be as good a year from now as they were a year ago,” Lehman’s head of EM research Guillermo Mondino tells LatinFinance. “The region is moving towards easier fiscal policies and tighter money across the board, and that’s not a desirable policy mix.” The near term effects include a slight pickup in inflation and a slowing of local markets development.