Arthur Byrnes, Deltec Asset Management
Arthur Byrnes was hired by Deltec Asset Management right out of
Stanford Business School. Now, as chairman of Deltec, he is the
manager of its Latin American debt funds-at least one of which has
consistently outperformed its peers over the last five years with a
return of almost 300%.

On the most emblematic figure of the last 10 years…
I think Domingo Cavallo’s the leading player, not because of the
currency board but because of everything else that went along with
it. I saw him recently and asked him whether Indonesia should have
a currency board, and he told me the currency board is not the real
issue but rather all the other things you need to do before
implementing the currency board. All of those things that Menem was
allowing those guys to do: start collect taxes, start balancing
budgets, have free trade, start allowing the capital to go where it
wanted to go, and then have enough reserves to back the monetary
system to do the currency board. If every Latin country had a
Cavallo, they’d be even more ahead of what I think has been a
phenomenal decade.Another guy you have to mention is Fernando
Henrique Cardoso. When Carlos Menem had the sense to appoint
Cavallo and let him do what needed to be done, they were operating
in the first term with a Congress that was of the same party and
therefore had the ability to pass laws. Alberto Fujimori in Peru
had the ability to pass laws because the majority in Congress was
of the same party. The Mexicans always had the PRI and could pass
the laws they needed to pass. The fact that all these people have
been able to do all the things that we admire is because the
population elected a president and a party that wanted to do it.
But in Brazil, there’s been no leader who has had party dominance
in Congress. You have to have legislation passed by a guy who is a
master of consensus and deal-making and still try to carry the
country to where the others have gone. I think he’s shown an
extraordinary amount of leadership. On key catalysts for
change…Although no one thing by itself was a catalyst, another
fabulous thing that happened during that time was the Brady plan. I
think people have forgotten that throughout the 1980s when Baker
was Treasury Secretary, one of the schemes talked about regarding
Latin America was lending the countries more money so that they
could pay their interest and the loans would be current. But that
was a joke. Those things were restructured and restructured, and it
failed. The countries had zero capital coming in, so how could you
possibly lend to someone who is already in default? The only way
things were happening was through secured trade finance. Finally,
someone comes along and says, “Let’s face the music here. Let’s
give these people time and give them a plan whereby the
mutlilaterals can lend money secured with zero-coupon bonds.” A
bank could now put a 30-year loan on its books with a six percent
fixed coupon with the assurance that after 30 years it would get
paid, because the zero-coupon bonds backing it up would certainly
mature. You had someone coming in and defusing all that debt by
lending those countries enough money to buy the zero coupons, and
all of a sudden the default problem starts to go away. As it goes
away, new money comes in. We’ve seen tons of new eurobond deals in
the 1990s that wouldn’t have happened without the Brady Plan.A
corollary event at the same time, which had nothing to do with
Latin America but was critical to the success of all these things,
was the fall of the Berlin Wall. Suddenly, the whole threat of
another Fidel Castro rising up in Latin America was gone. All of a
sudden, everyone running for president in these countries is a
capitalist.

On deals that represent the changes in the region…
One that doesn’t was in Mexico just after the peso bailout. It was
an unsecured, 30-year eurobond issued just 12 or 15 months after
the crisis, the UMS ’27. It wasn’t smart money. But that just shows
you what kind of an appetite there is for yield. It had an 11 1/4%
coupon and people bought it. Among the privatizations that do stand
out, YPF was a huge deal, but oil to Argentina isn’t what oil is to
Mexico or Brazil or Venezuela. A really weird one was the
privatization of the Peruvian telephone company. There were two
bidders and as I recall, the first bid some $800 million higher
than the other. That’s 60% higher than the other bidder. The
Argentine telephone sell-off has had enormous impacts. But Telebras
will be by far the most significant.

On changes in Brazil…
Brazil has been slow to do what was done in Argentina earlier
because of the democracy factor and so many parties. Also, Fernando
Collor came in at about the same time Menem did, and he started off
well but put a monkey wrench into everything. Then you had Itamar
Franco for two years. Since Cardoso came in and established the
Real Plan, it has been terrific. The Brazilians are good at
mid-course correction, and now they’re trying to do what Menem and
Cavallo did but under a democracy and in their own way. Their own
way is always a sort of mid-course correction, a jiggling of the
dials rather than the bold, dramatic change that took place in
Argentina.