For emerging markets investment analyst Arturo C. Porzecanski, the economies of Latin America and the Caribbean, while doing better this year than last year, remain a disappointment. “Compared with what we should be doing, we’re doing badly,” he says.
Porzecanski, managing director and head of Emerging Markets Sovereign Research at ABN AMRO Inc. of New York, says growth for the region was flat in the first few months of 2003 and is not expected to rise until the second semester, achieving annual growth of one to two percent. Foreign direct investment remains at low levels and trade volume is also low. Part of the problem is world economic stagnation, in which the economies of Japan and some large European countries are virtually “dead in the water,” while East Asian economies have suffered from the negative effects of the SARs pandemic, he noted. But Latin America must also undertake greater institutional and policy changes and adopt new attitudes to achieve faster growth and attract more investment, Porzecanski told a seminar held June 3 at the Inter-American Development Bank in Washington, D.C. He said investors were particularly concerned about the future of reform measures pending in the congresses of Argentina, Brazil and Mexico.
On the positive side, he noted a surprising persistence of favorable trends in the region, including low inflation, stable national currencies and manageable current accounts. Early policy moves by the new government in Brazil have restored investor confidence in that country, he said, while Argentina, which faces formidable policy challenges, “is recuperating.” He described Mexico’s current economic stagnation as disappointing, but praised the soundness of the country’s national financial management and record low interest rates.
Porzecanski said Eastern Europe could be an example for Latin America because, as it tightens its trade bonds with Western Europe, its “institutions are being changed, its rules of the game are being changed, its attitudes are being changed – there is real institutional change that is helping these countries transform themselves.” Latin America, he pointed out, has been slower to accept the overall transformations that can accompany international trade integration.
The seminar examined the effectiveness of various capital market instruments in contributing to national economies. The IDB supports capital market development in Latin America and the Caribbean through loans and guarantees. The IDB Private Sector Department has recently expanded its range of financial instruments by undertaking operations that guarantee bond issues for development projects and mortgage securities. It has also recently begun operations to support international trade financing.