Latin Finance - May 2008 - 62

nicholas brady On the political side, I see overall maturation with some setbacks or diversions. I would have to point to the peaceful democratic change of power in Mexico, ending 70 years of unilateral rule by the PRI and spawning a modern threeparty system. Also notable is the election of a leftist leader in Brazil who was enlightened enough to keep certain market-based aspects of policy that worked well, while pursuing a liberal social policy agenda. The populist-socialist model being advanced by Chávez in Venezuela has attracted a lot of attention, but there is increased recognition that it is not a viable course for most LatAm countries. What changes do you expect in the next 20 years? There will be continued adoption of outward looking policies and willingness to participate in the world economy. I also expect fiscal discipline and pension reforms. In the decades ahead, most of the global economic growth will take place in countries currently referred to as emerging markets. This is an opportunity for Latin America. I anticipate a big drive toward becoming more competitive through increased investment in infrastructure and continued reforms and developments in the energy sector. Brazil is fast becoming a world leader in this respect now that it has become a net exporter in both oil and agricultural based fuels. LatAm companies will continue to expand and increasingly become global players through acquisitions and organic growth. We are already seeing evidence of this as LatAm firms acquire companies on a global basis, developed markets included. There will also be major structural reforms instituted, for labor and tax, that allow economies to grow at Asian-like growth rates. And I expect improved income distribution as the region expands and creates a more significant middle class. There has also been significant improvement in capital markets supported by local savings – mainly pension funds that have increased assets under management at double digit rates. Governments are following marketoriented policies, in certain countries, despite affiliation with left of center governments, along with the preservation of democratic processes. LatAm is no longer just a commodities play, as its economies have become much deeper and more complex. They compete in value-added products as well as extend the benefits of a stronger and broader credit market to domestic consumers and homeowners, at the moment especially in Mexico, but increasingly in Brazil. Moreover, tourism and second-home destinations for Baby-Boomers are creating great economic growth opportunities in remote areas of the region. Investors have detected the great opportunity for high growth consumer strategies and FDI has soared. increased investment, production standards and competitive advantages. What makes you most positive on the outlook for LatAm? A compelling workforce, excellent human capital, and many entrepreneurs who – if given the right tools – can stimulate growth. There is also a growing middle class and large consumer markets with very significant pent-up demand, as consumption has been constrained by slow economic growth. Where is LatAm heading versus other emerging markets and what is driving that? Countries like Brazil, Mexico, Chile, Colombia and Peru, driven by an agile business community with enlightened economic policies and a diversified natural resource and industrial base, will soon graduate to an Asia-like growth rate range if they follow through with certain structural reforms, including tax, energy and labor. What have been the most negative trends? Slow progress toward closing the gap between rich and poor. This has given way to more left of center leaders to rise to power in Argentina, Venezuela, Bolivia and Ecuador at the expense of loosening discipline in fiscal spending and a slowdown in privatization and pending market-economic reforms. There has also been slow progress in passing structural reforms, tax and labor laws; generally weak and insufficient infrastructure necessary to grow and compete; and a regression towards autocratic rule in some countries. Which individuals and institutions have had the most impact on Latin capital markets and why? Government monetary policies and regulations that facilitate the operation of capital markets are still central to the depth and opportunity in each of the countries. And some countries have done much better than others. Local pension funds that have increased funds under management at double digit growth rates are investing a larger percentage of their assets in local equity markets. And the creation of the Novo Mercado in Brazil, with its more transparent and equitable corporate governance requirements, has given investors more confidence to invest in Brazilian companies knowing that their minority shareholder rights will be protected. What is the biggest negative on the horizon and why? In the short term, a global economic slowdown could hurt commodity prices, reverse the trade balance, reduce capital access, and affect LatAm economic growth. This period will be the real test for LatAm to see if it can sustain external shocks, keep inflation down and continue growth trends through What have been the most positive trends? Entrepreneurial talent and energies that have created new companies and done well in a global context. What do you know now about LatAm financial markets that you wish you’d known 20 years ago? I had my eyes wide-open when I started doing business in LatAm, and understood the lack of financial depth – that was the opportunity! LF 62 LATINFINANCE May 2008

Latin Finance - May 2008

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