LatinFinance - July 2013 - 3

Front Notes

The replay
C

risis in the developed world proved to be a boon for investment into Latin America.
But companies and countries in the region are now suddenly confronted with the prospect
that a recovery in the US could turn out to be to their disadvantage.
The volatility that has roiled global markets in recent weeks has highlighted how quickly the
cycle can turn. It has come as a rude awakening for Latin borrowers, investors and policymakers
who find themselves, with the prospect of rising US interest rates, all of a sudden preparing for an
end to an era of abundance.
It’s a movie the region has seen before. In 1994, an abrupt US rate hike triggered a crisis,
starting in Mexico, which subsequently swept the emerging markets over the remainder of the
decade.
That film was arguably more horror story than mere drama. The question today is how the
2013 remake will turn out.
Economies across much of Latin America have strengthened markedly since the early 1990s.
But while each iteration of the plot has been adapted for the times, that’s no guarantee the ending
this time will be a happy one.
In March 1995, LatinFinance ran an article proclaiming that the crisis triggered the year before
was not the same as the one that befell the region in 1982. Latin America was much stronger than
a decade earlier, the piece said, and countries’ risk profiles had improved. Indeed, the sharp rise in
US rates between 1994 and 1995, while traumatic for the bond markets, did not ultimately lead to
a “lost decade” for Latin America, as had been the case following the preceding debt crisis in the
1980s.
Yet in spite of the region’s stronger footing back then, the Mexican experience nevertheless
showed how devastating the actions of its northern neighbor could be.
As we discuss in depth in this issue’s cover story, the prospect of monetary tightening in the US
represents a potentially momentous turning point for Latin America. Companies and sovereigns
may continue tapping debt markets, though that will get more expensive. But downward pressure
on currencies could have broad ramifications for the region’s economies – most worryingly, if it
leads to a spike in inflation.
Today, the question being asked is whether Latin America’s golden moment is coming to an
end. The tightening of US monetary policy will come at the same time as a slowing of China’s
economy – a fact that has already put pressure on prices of commodities, which have provided
much of the tailwind for Latin America’s expansion over the past decade.
And as recent unrest in Brazil suggests, the expectations of an increasingly prosperous and
vocal public will demand economic as well as political solutions.
Sparked by a rise in bus fares, protests in Latin America’s biggest country quickly came
to represent a deeper discontent with the government and the economy, which was already
displaying signs of fatigue.
In a historical and global context, Brazil’s problems are serious ones for emerging markets.
Protests in Brazil followed weeks of unrest in Turkey, where the government struggled to maintain
control of the situation. Two years ago, both countries were shining examples of success in
industrializing economies: burgeoning industry, growing internal consumption and rapid growth.
That this should change so suddenly serves as a reminder that the emerging markets, for all their
progress, are still riven with risk.
As rates rise and currencies slump, it is not just investors who must adapt. Policymakers,
companies and people on the street – whether they are protesting or buying groceries – must
realign their expectations to meet a rapidly emerging reality. LF

Have your say. Contact us: editorial@latinfinance.com

EDITOR-IN-CHIEF Taimur Ahmad
NEWS EDITOR Ben Miller
FEATURES EDITOR Katie Llanos-Small
REpORTERS Mariana Santibáñez, Karen Schwartz
ART DIRECTOR Rosa Matamoros-Sense
COVER ILLUSTRATION Gary Neill
CARTOON ILLUSTRATION Christopher Weyant
pORTRAIT ILLUSTRATION Rob Murray
DEpUTY pUBLISHER
Teresa Aguilar, T +1 212 224 3051
REGIONAL DIRECTOR
J. Albert Negrón, T +1 305 428 6275
REGIONAL DIRECTOR
Arielle Schrader, T +1 305 428 6274
SENIOR MANAGER
Nicolas Cano T +1 212 224 3499
VENEzUELA REpRESENTATIVE
Matthew Perks, T +1 718 260 8970
CEO CONFERENCES Michael Brosgart
EVENTS EDITORIAL DRECTOR Teddy Ward
SENIOR EVENTS MANAGER Omar Suarez
EVENTS pROGRAMMER Aarti Bhatnagar
EVENTS CAMpAIGN MANAGER Kalel Dias
MARKETING AND 1-1 MEETING COORDINATOR
Lily Costa
MARKETING MANAGER Marina Carbone
CIRCULATION MARKETING MANAGER Patricia Arcic
OFFICE MANAGER Teresa Romero
ASSISTANT TO THE CEO Vicky Maqueira
LATINFINANCE BOARD OF DIRECTORS
pRESIDENT Christopher Garnett
DIRECTORS Stuart Allen, Colin Jones, Giuliana Moreyra
CHIEF EXECUTIVE OFFICER
Stuart Allen
CHIEF OpERATING OFFICER
Giuliana Moreyra

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LatinFinance - July 2013

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