Latin Finance - May 2008 - 59
mohamed el-erian breadth and depth of the region’s interaction with the most dynamics economies in the world. This speaks to trade and investment linkages; it also relates to how well Latin America fits in a forward-looking specification of the global production and consumption chains. The region will also have to navigate the price implications of these changing dynamics. The growing importance of consumption in Asia and other emerging economies translates into higher global demand for a broad range of raw materials. Indeed, as a larger number of people in these economies join the middle class, we will continue to witness upward demand pressures on commodities such as cereals, copper, gas, iron ore, meat, oil, etc. Using economic jargon, this translates into higher inflationary pressures on account of “demand pull” forces. There is also a “cost push” element. Wages are going up in several emerging economies, especially where the pool of surplus labor has been significantly drawn down in recent years. As a result, LatAm is part of a global economy that will have to deal with the prospect of higher imported inflation. All this is, of course, part of a broader global change that pertains to wealth accumulation. In the next few years, the global economy will be adjusting to two basic realities: first, the extent to which emerging economies as a group have shifted from a debtor to a creditor regime; and second, the extent to which these economies will be transitioning from a reserve management mindset to a wealth management one. Both signal a significant potential for higher flows of portfolio and direct investments between emerging economies. of increasingly wealthy emerging economies in Asia and the Middle East. These are necessary conditions; but they are not sufficient. There is nothing automatic about the region’s ability to benefit from the new global economy. It will only capture and realize the beneficial opportunities if appropriate actions are taken. And, unlike the past, the main burden falls on the private sector. So, how is the private sector doing so far? For this, we will venture beyond the usual data to look at indicators that do not normally feature prominently in an analysis of LatAm developments and prospects. And the evidence from this “The region offers significant return and diversification opportunities for investments,” says El-Erian non-traditional information set suggests that the private sector is responding, but that the reaction function overall falls short of what we are seeing elsewhere. According to UNCTAD figures, eleven LatAm companies now feature among the top 100 multinationals from developing countries with significant foreign holdings. As discussed in the December edition of LatinFinance, the range is slowly expanding beyond commodities. All of these companies, including those active in manufacturing and telecoms, have witnessed a significant rise in such holdings since 2001 and a related climb up the value added ladder within the global production chain. This has been accompanied by an increase in the share of foreign sales in total sales. These numbers are impressive and speak to the growing dynamism of the private sector in Latin America. Yet they pale in comparison to what is happening elsewhere, and most notably in Asia. Specifically, the region continues to lag Asia when it comes to both the depth of the internationalization phenomenon and the extent to which it involves a “southsouth” component (i.e., interactions with other developing countries as opposed to western Europe, Japan and the US). Thus, while the data suggest that LatAm companies are accelerating their internationalization process, the region still has enormous scope for additional reorientation of activities to ensure greater exposure to the more dynamic parts of the global economy. Such a process would facilitate technology transfer, the adoption of best practices, better labor utilization, and sustainable increases in factor productivity. It would liberate companies from the potential constraints down the road of a saturated domestic market. And it would also serve to reduce sensitivity to the US which is likely to sustain only sub-par growth for a number of years as the overstretched financial system retools and balance sheets are revitalized. As such, an accelerated internationalization process also serves as a risk diversifier. Closing Thought The responsibility for repositioning Latin America’s economies now falls squarely in the lap of the private sector. The public sector, which has worked hard to bring about greater macroeconomic stability and strength, must continue to play a supporting role as the guardian of macroeconomic stability, the enforcer of property rights, and the promoter of deeper and well-supervised domestic financial markets. But it is up to the region’s leading companies to re-orient their activities in a manner that allows them to exploit the profitable opportunities in a rapidly evolving global economy. Such a reorientation would also make Latin America a more attractive destination for the massive amount of wealth that is now accumulating in other emerging countries. LF Mohamed A. El-Erian is co-CEO and coCIO of PIMCO. His book, “When Markets Collide: Investment Strategies for the Age of Global Economic Change,” is scheduled to be published in July by McGraw Hill. Latin America’s Outlook As a region, and notwithstanding differences among individual countries, LatAm appears well placed to benefit from these changes. Its natural resource endowments include those commodities with prices that are benefiting handsomely from changes in the global economy. Moreover, the region offers significant return and diversification opportunities for investments from the set May 2008 LATINFINANCE 59
Latin Finance - May 2008
Table of Contents for the Digital Edition of Latin Finance - May 2008
Latin Finance - May 2008
Contents
20 Years in Review
Markets Outlook
Awards - 20 Years of Excellence
Roger Thomas
Jose Olympio
Roberto Setubal
Bill Rhodes
William Rhodes
China and Latin America
Michael Pettis
Mohamed El-Erian
Nicholas Brady
Pedro Pablo Kuczynski
Brazilian Investment Banking
Maria Helena Santana
Fernando Henrique Cardoso
Henrique Meirelles
Arminio Fraga
Andres Velasco
José Pablo Arellano
Codelco
Eduardo Elsztain
Julio Torres
Mark Mobius
Larry Summers
Charles Dallara
Martin Schubert
Claudio Loser
Francisco Gil Diaz
Hans Humes
Francisco Gil Diaz
Therese Rabieh
Nina Shapiro
Enrique Garcia
Angel Gurria
Susan Segal
Martin Krause
Alberto Benavides
Hans Schulz
Lee Buchheit
Latin Finance - May 2008 - Latin Finance - May 2008
Latin Finance - May 2008 - Cover2
Latin Finance - May 2008 - Contents
Latin Finance - May 2008 - 2
Latin Finance - May 2008 - 3
Latin Finance - May 2008 - 4
Latin Finance - May 2008 - 5
Latin Finance - May 2008 - 6
Latin Finance - May 2008 - 7
Latin Finance - May 2008 - 8
Latin Finance - May 2008 - 9
Latin Finance - May 2008 - 10
Latin Finance - May 2008 - 11
Latin Finance - May 2008 - 12
Latin Finance - May 2008 - 13
Latin Finance - May 2008 - 14
Latin Finance - May 2008 - 15
Latin Finance - May 2008 - 16
Latin Finance - May 2008 - 17
Latin Finance - May 2008 - 20 Years in Review
Latin Finance - May 2008 - 19
Latin Finance - May 2008 - 20
Latin Finance - May 2008 - Markets Outlook
Latin Finance - May 2008 - 22
Latin Finance - May 2008 - 23
Latin Finance - May 2008 - 24
Latin Finance - May 2008 - 25
Latin Finance - May 2008 - 26
Latin Finance - May 2008 - 27
Latin Finance - May 2008 - 28
Latin Finance - May 2008 - 29
Latin Finance - May 2008 - 30
Latin Finance - May 2008 - 31
Latin Finance - May 2008 - 32
Latin Finance - May 2008 - 33
Latin Finance - May 2008 - 34
Latin Finance - May 2008 - 35
Latin Finance - May 2008 - 36
Latin Finance - May 2008 - 37
Latin Finance - May 2008 - 38
Latin Finance - May 2008 - 39
Latin Finance - May 2008 - 40
Latin Finance - May 2008 - 41
Latin Finance - May 2008 - 42
Latin Finance - May 2008 - 43
Latin Finance - May 2008 - 44
Latin Finance - May 2008 - 45
Latin Finance - May 2008 - 46
Latin Finance - May 2008 - 47
Latin Finance - May 2008 - Awards - 20 Years of Excellence
Latin Finance - May 2008 - 49
Latin Finance - May 2008 - Roger Thomas
Latin Finance - May 2008 - Jose Olympio
Latin Finance - May 2008 - Roberto Setubal
Latin Finance - May 2008 - William Rhodes
Latin Finance - May 2008 - China and Latin America
Latin Finance - May 2008 - 55
Latin Finance - May 2008 - Michael Pettis
Latin Finance - May 2008 - 57
Latin Finance - May 2008 - Mohamed El-Erian
Latin Finance - May 2008 - 59
Latin Finance - May 2008 - Nicholas Brady
Latin Finance - May 2008 - 61
Latin Finance - May 2008 - 62
Latin Finance - May 2008 - Pedro Pablo Kuczynski
Latin Finance - May 2008 - Brazilian Investment Banking
Latin Finance - May 2008 - 65
Latin Finance - May 2008 - 66
Latin Finance - May 2008 - 67
Latin Finance - May 2008 - 68
Latin Finance - May 2008 - 69
Latin Finance - May 2008 - 70
Latin Finance - May 2008 - Maria Helena Santana
Latin Finance - May 2008 - Fernando Henrique Cardoso
Latin Finance - May 2008 - 73
Latin Finance - May 2008 - 74
Latin Finance - May 2008 - Henrique Meirelles
Latin Finance - May 2008 - Arminio Fraga
Latin Finance - May 2008 - 77
Latin Finance - May 2008 - 78
Latin Finance - May 2008 - Andres Velasco
Latin Finance - May 2008 - Codelco
Latin Finance - May 2008 - Eduardo Elsztain
Latin Finance - May 2008 - 82
Latin Finance - May 2008 - 83
Latin Finance - May 2008 - Julio Torres
Latin Finance - May 2008 - Mark Mobius
Latin Finance - May 2008 - 86
Latin Finance - May 2008 - Larry Summers
Latin Finance - May 2008 - Charles Dallara
Latin Finance - May 2008 - Martin Schubert
Latin Finance - May 2008 - Claudio Loser
Latin Finance - May 2008 - Hans Humes
Latin Finance - May 2008 - 92
Latin Finance - May 2008 - Francisco Gil Diaz
Latin Finance - May 2008 - Therese Rabieh
Latin Finance - May 2008 - Nina Shapiro
Latin Finance - May 2008 - Angel Gurria
Latin Finance - May 2008 - 97
Latin Finance - May 2008 - Susan Segal
Latin Finance - May 2008 - Martin Krause
Latin Finance - May 2008 - 100
Latin Finance - May 2008 - Alberto Benavides
Latin Finance - May 2008 - Hans Schulz
Latin Finance - May 2008 - 103
Latin Finance - May 2008 - 104
Latin Finance - May 2008 - 105
Latin Finance - May 2008 - 106
Latin Finance - May 2008 - 107
Latin Finance - May 2008 - 108
Latin Finance - May 2008 - 109
Latin Finance - May 2008 - 110
Latin Finance - May 2008 - Lee Buchheit
Latin Finance - May 2008 - 112
Latin Finance - May 2008 - Cover3
Latin Finance - May 2008 - Cover4
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