Latin Finance - March/April 2012 - 26

finance ministry scorecard

The Right Moves
by Karen Schwartz

hile Europe teetered, Latin America’s governments have been mostly well regarded for shrewd debt issuance, liability management and, in a few cases, significant fiscal reforms. The third annual LatinFinance Finance Ministry Scorecard takes the views of economists, analysts and investors on ministries’ performance across several areas, including currency appreciation, inflation management, fiscal performance, independence from political pressure, transparency and clarity of communication with markets as well as use of capital markets and financing innovations. This year Colombia leads the pack of countries receiving positive feedback, along with Peru, Uruguay and Chile. Minister Juan Carlos Echeverry, who arrived in June 2010 with the new government of Juan Manuel Santos, is seen as moving in the right direction in a rapidly expanding economy that saw internal demand growing sometimes above 11%. “He knew what he had to do,” says Drausio Giacomelli, managing director and head of emerging markets strategy for Deutsche Bank. “He used good economics, pragmatism and political support. What else do you need?” There seems to be broad consensus that Colombia has advanced well under Echeverry’s leadership in terms of securing reforms, as the country sought to address fiscal responsibility, royalties and growing infrastructure needs. Reforms have been quite scarce in EM, Giacomelli says, and in that sense Colombia stood out. The amended distribution of naturalresource royalties and prioritization of infrastructure investment have highlighted better deficit management and incentive structures overall, Giacomelli says. Echeverry’s role in instituting a more

Colombia comes out on top in this year’s ranking, after Minister Echeverry shows pragmatism and political savvy to push through fiscal reform.
Peru Beats Expectations
Peru rises to second from a third place finish last year, after markets were reassured by the policies of President Ollanta Humala’s administration following last year’s elections. Finance Minister Luis Miguel Castilla played a significant role in how the government negotiated talks with mining companies, says Carola Sandy, director of EM economic research at Credit Suisse. Peru is moving in the right direction, says Daniel Niño, head of research at Bancolombia, citing the shift toward decentralization as part of what puts the country on the right track. “We need to see further policy announcements, whether they will be able to develop this decentralization of Peru in a manner that is still reasonable in terms of promoting investment and fiscal decentralization,” Niño says. “At this point he’s doing a good job.”

Echeverry puts the right reforms in place progressive tax system for the oil and gas sector and the mining sector has also contributed to the country’s growth, says Nick Chamie, global head of emerging markets for RBC Capital. The government is targeting a deficit of 1.8% this year versus 3% in 2011. That, combined with a fiscal rule passed in Congress in June, could lay the groundwork for fiscal planning on a multi-year basis, and Echeverry was key in instigating this move, Chamie explains. “It will help ensure financial discipline in the years to come. It enshrines it in law and helps to replicate some of the success Chile has had with a fiscal rule in helping to create stable finances,” says Chamie.

Proactive Uruguay

Uruguay’s government was seen as proactive in extending the country’s debt profile and also disciplined in its fiscal management, preparing itself well for the possibility of a major slowdown in economic activity worldwide, and ending last year with a smaller deficit than originally expected. Minister Fernando Lorenzo has been making efforts to improve Uruguay’s fiscal position and move the country toward its goal of becoming investment grade, and also working to help the central bank reach its inflation goals, says Fitch Ratings analyst Santiago Mosquera. Fitch

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March/April 2012

Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012