Latin Finance - May 2008 - 60

nicholas brady The Acid Test by Staff Reporters icholas Brady, former US treasury sector and creator of the Brady Plan, tells LatinFinance about the tests ahead for Latin America. In his view, the region cannot escape the storm ripping through developed markets unscathed. “What is happening in this country can’t help but affect Latin America’s future,” says Brady in a speech at the April LatinFinance 20th Anniversary Gala Dinner & Awards Ceremony in Miami. “Because we operate in an increasingly global economy, it’s impossible for Latin America to avoid some collateral damage from our present malaise,” he adds. Brady compared the US economic duress to the major systemic crisis the economy faced two decades ago when he was treasury secretary. “In 1989 and ‘90 remedial steps were called for, and we took them. And today with a banking system that faces systemic predicaments and an economy that may be on the brink of the deepest recession in a generation, that’s where we are again,” Brady says. However, he notes, while two decades ago it was possible to identify the borrowers and lenders, as well as their capacity, now it is not. Brady adds that the process of deleveraging and re-pricing will take time, but says that a great deal of the success in the late 1980s came from prompt action. The official also warns against over regulating in response and fields 11 questions from LatinFinance. N LatAm faces a real test from the global economic slowdown. Now is the time to prove it can sustain external shocks, cap inflation and extend growth trends, says Nicholas Brady. ratings upgrades. The big economies are able to absorb volatility with record levels of foreign reserves, lower foreign debt, strong foreign direct investment (FDI), a greater domestic borrowing component and lower market volatility. Human capital and institutions have become vastly more sophisticated, deeper and more connected to global markets and events. What were the most noteworthy events and why? LatAm suffered three serious economic crises in the last 25 years, starting in 1982 with the Lost Decade of the 1980s, then in 1995 the Tequila Effect, and finally the currency collapse in 1999-2001 involving maxi-devaluations in the Brazilian real and the Argentina peso. These crises demonstrated the vulnerability of the economies in LatAm as they struggled to emerge from the debt crisis in the 1980s and stabilize as open economies. However, by one measure or another, market-oriented countries in LatAm have both overcome those crises and consistently come out of them with stronger fundamentals. Learning from these past crises, many LatAm countries now have free-floating currencies and have built out their reserve base, kept tighter controls over fiscal spending and reacted quickly to inflationary pressures. Who would have imagined only a few years ago that in 2007, Brazilian issuers would raise over $32 billion through 66 IPOs on the local exchange, including some very successful issues that were launched following the start of the subprime turmoil in the US? Eyes wide open: Nicholas Brady investment environment. Unfortunately the path has become split with one group going backward into last century’s populist socialism movement, and the other – fortunately including the largest economies of Brazil and Mexico – going forward into the 21st century as important participants in global markets. Capital markets have deepened in the forward-looking countries. As in Mexico, Brazil is rapidly approaching the point where its credit markets will finance strong growth in the business and consumer sectors. Equity markets have resurged to become an important source of capital and are now characterized by strong securities laws and more liquidity. The sovereign debt profile has become very solid as evidenced by numerous What have been the main changes in Latin American finance since you started working in the industry and what caused them? Countries have moved to become market economies on the coat-tails of democratization compared to the tightly controlled economies of the past which led to capital flight and an undesirable 60 LATINFINANCE May 2008

Latin Finance - May 2008

Table of Contents for the Digital Edition of Latin Finance - May 2008