Category: Structured Finance

LatAm is in its best ever fundamental shape to withstand bearish pressure overhanging from wobbly developed world markets. But as IDB annual meetings get underway in Miami, the hostile external environment – how bad it will get and what impact it will have on EM – is top of the agenda. LatAm reserves are at all time highs, debt is rapidly being paid down, there is greater commitment to responsible fiscal and monetary policy and increasing evidence that countries can maintain stability through a whole cycle, rather than just the upswing. And locals remain fairly bullish. But those who assume the global turmoil will not dent LatAm are whistling past the graveyard. “People are concerned, you can feel the anxiety,” says a veteran LatAm debt banker. “Overall it’s going to be a hard year for everyone, there’s no doubt,” he adds. According to Larry Summers, Charles W. Eliot professor at the Harvard University Kennedy School, the US recession is different to the standard inventory recession, making it more likely to be protracted. “It’s appropriate I think to be quite concerned,” Summers tells LatinFinance, referring to the US economy. “We haven’t seen a comparable situation in a long time and I think there’s the possibility that it could get worse,” he adds.

The IDB has approved a $5.4m loan to Uruguay for a foreign trade management program to foster international economic integration. The 25-year term loan has a 54-month grace period, at a variable interest rate and will receive $500,000 in local counterpart financing.

The IDB has approved the first $50m tranche of a $200m credit line for second-tier financing for public service providers in Colombia. The main goals of the program are to facilitate longer maturities for eligible projects of public service providers, improve access to financing, in particular for small projects, and consolidate the role of government agency Findeter.

The IDB has approved a $50m loan to Paraguay to provide medium and long-term financing for business ventures that support the promotion of competitiveness of the productive sector. The 30-year variable-rate loan, the first from a $150m credit line for investment projects, includes a 5.5-year grace period.

The IDB’s Multilateral Investment Fund has approved a $175m loan to Cooperativa de Servicios Financieros a la Microempresa (CSFM) and agreed to cooperate in the design of a financial services coverage system for suburban and rural entrepreneurs in Chile. The 3-year loan, renewable once for 3 more years, pays 300bp over 6-month Libor.

Peru plans to prepay about $1.1bn of its debt to the World Bank and IDB by mid-year, according to local news and wire reports citing finance ministry official Jose Miguel Ugarte. It will use treasury funds to finance the repurchase of $620m in debt from the World Bank and $497m from the IDB, and is also considering the sale of new PES-denominated debt. Peru repurchased $838m in outstanding Brady bonds March 7. The planned buyback will be Peru’s biggest since a $1.8bn repurchase of Paris Club debt in July.

The IDB has approved a $2.7bn 9-year conditional credit line for investment projects in Argentina and a first $630m disbursement to support education. The loan is for a 25-year term, with a 3-year grace period with an adjustable rate of 5.64%, Marcelo Cabrol, education division chief of the bank tells LatinFinance. Local counterpart funds for the loan total $70m and for the credit line $300m.

Migrants from LatAm and Caribbean sent some $66.5bn back to their home countries in 2007, about 7% more than in the previous year, according to estimates by the IDB’s Multilateral Investment fund (MIF). “This is the first time since we started tracking remittances in the year 2000 that we haven’t seen a double-digit increase,” says MIF manager Donald Terry. “This is mostly because the region’s two top recipients of workers remittances, Mexico and Brazil, departed significantly from past trends.” Mexican migrants appear to be less inclined to send money home, citing concerns about stricter enforcement of immigration laws and a slowing US economy. Increasing economic opportunity at home and a strengthening local currency have reduced the appeal of sending money home for many Brazilian immigrants in the US. Remittances to Mexico, however, were virtually unchanged in 2007, rising barely 1% to $24bn, while transfers to Brazil dropped 4% to about $7.1bn last year, MIF says.