Sometimes an idea for a cover illustration requires a bit of extra cooperation from the subjects. That was certainly the case with this issue’s artwork. When one competing banker explained the success Morgan Stanley achieved in Latin bond underwriting in 1998 by joking that “they must have put steroids in their cereal,” we couldn’t resist the temptation to construct our own special brand of breakfast cereal, and Stephen Cunningham was kind enough to indulge us.
The bank’s success, we know-and Cunningham would be the first to point out-is due to more than one individual, but we’re sure the rest of the Morgan Stanley team will understand the logistical difficulties of portraying them all digging into a gargantuan bowl of ‘Stanley Shreds’.
All humor aside, as David Swafford points out in his article, Morgan Stanley’s rise as a significant competitor in the Latin bond league tables was one of the most impressive capital markets stories of 1998. Previously more adept at winning mandates on the corporate side, the bank came out of nowhere last year to win the top position in the sovereign league tables, which in turn helped it move from eighth to first position in the overall table. In his article, David seeks to answer two key questions: how did they do it, and will they be more than just a one-year wonder?
The March issue also unveils LatinFinance’s annual Man of the Year award. This year, our special distribution at the Inter-American Development Bank meeting in Paris is all the more fitting, since the recipient is none other than IDB President Enrique Iglesias. His decade of service at the IDB has been marked by a significant increase in the institution’s resources and in its impact on Latin America and the Caribbean. Iglesias has also turned the IDB into an agile and responsive “banco amigo” as he likes to call it-a friend and partner in the development of the region he holds dear.
Especially in periods of economic stress, Iglesias’s strong conviction on the need to weave social justice with market reforms is a shining example of what will likely prove to be one of the central questions of the new millenium. How do you balance the developmental power of the market with the need for efficient governments which meet social needs that the market cannot adequately address? The answer, if it can be found, will require the same compassion, hard work and consensus-building that Iglesias has shown during his tenure at the bank.
Expanding on the topic of reform, Brazil is once again in the news, with the quick departure of Francisco Lopez as head of the country’s central bank. While Lopez is a highly regarded economist, it doesn’t seem he was schooled to face the rough and tumble financial markets-with the irony that in being defeated by speculators, he was also replaced by one.
Former Soros fund manager Arminio Fraga, however, is much more than a speculator, having also spent time in investment banking and at the central bank to which he now returns. His connections at the IMF and the World Bank should also serve him well. Fraga’s ability to build a credible exchange rate policy will be central to Brazil’s future economic well-being, but he also will depend on the continuation of fiscal reforms, and some sort of resolution on the country’s internal debt burden. The one certainty in the equation surely must be that the rest of the region wishes him the utmost success.
The consequences of failure are high, not the least of which might be the return of inflation. As Jennifer Rich finds in her article, “The Ghost of Inflation Past?,” most economists are predicting 1999 inflation in the range of 8% to 15%, but nowhere near the spiraling rates of years gone by. By and large, Brazilians seem prepared to suffer the pain of economic contraction rather than risk a return to hyperinflation, and the administration of Fernando Henrique Cardoso seems equally determined to stave off unnecessary price hikes and any talk of a return to indexation.
What is the ultimate solution for Latin America’s traditional turbulence? In this month’s Fact&Opinion feature, emerging markets veteran Mark Mobius proposes a single currency as a way to combat the region’s history of boom-bust cycles and as a formula to create steady growth going forward. With Argentina now discussing full dollarization, that’s surely a topic we’ll be revisiting.