Latin Finance - November/December 2011 - 12

global contagion risk

Storm Watch
by Ben Miller

Latin America may be better prepared to face contagion risks, but the debt crisis in Europe will bring unexpected surprises for the battled-tested region.
fter dodging a bullet in 2008’s financial crisis and subsequently fixing vulnerabilities exposed during that period, Latin American policymakers feel more prepared than ever to face future contagion risks. Events in Europe, however, are being watched with increasing unease amid the realization that the continent’s debt predicament will eventually wash upon the region’s shore in some form or another. A splashy announcement by eurozone leaders in late October sent markets sharply higher, but the plan’s lack of substance and the difficulties of executing it left many observers unconvinced that the uncertainty hanging over Europe had passed, meaning that Latin America will have to live with the ensuing volatility for quite some time. “This package is still as opaque as it gets – big announcements are very different from actual logistics and implementation,” says Robert Abad, a senior analyst at Western Asset Management, which has $3.6 billion under management in EM. Each crisis brings its own set of surprises and this one will be no different. Finding the possible transfer mechanisms that leave Latin America vulnerable to broader market volatility – caused in this case by debt problems in Europe and anemic growth in the US – is a popular thought experiment conducted among the region’s policymakers and market

A

participants these days. In Latin America’s case, this volatility could manifest itself in several ways. Weakness in the commodity complex if China’s economy slows, volatility in the FX rates, and a lengthy lull in capital markets activity are just some of the areas of susceptibility in the months ahead. But perhaps above all else, bankers are wondering what the sovereign debt crisis and subsequent recapitalizations will mean for European banks, many of which have a broad on-the-ground presence and have been active participants in Latin America’s loan markets, particularly infrastructure financing. For now at least, the immediate horizon looks stormy but manageable. Expectations for the developed world may be below 2.0% for this year, but JPMorgan and other forecasters see EM GDP above 6.0% for 2011 and between 5.0% and 6.0% next year. The shop estimates that LatAm growth should dip to 3.2% in 2012 from 4.0% this year, putting it behind its 3.6% potential, but not by far. In the event that worst case scenarios unfold in Europe, it is thought that Latin American countries will have more staying power than many others. Learning from prior crises, the region has won top marks for building the defenses necessary to protect itself against exogenous shocks. “The one region that has experienced the most crises and is the most battletested market has always been Latin America,” says Abad. “For anyone

12 LatinFinance

November/December 2011



Latin Finance - November/December 2011

Table of Contents for the Digital Edition of Latin Finance - November/December 2011

Latin Finance - November/December 2011
Contents
Contagion Risk
Mexican Credit
China Investment
Loan Markets
Mexico Banks
Sub-Sovereign Debt
Banks of the Year 2011
Argentina Investor Report
Reversal of Fortunes
Latin Finance - November/December 2011 - Latin Finance - November/December 2011
Latin Finance - November/December 2011 - Cover2
Latin Finance - November/December 2011 - Contents
Latin Finance - November/December 2011 - 2
Latin Finance - November/December 2011 - 3
Latin Finance - November/December 2011 - 4
Latin Finance - November/December 2011 - 5
Latin Finance - November/December 2011 - 6
Latin Finance - November/December 2011 - 7
Latin Finance - November/December 2011 - 8
Latin Finance - November/December 2011 - 9
Latin Finance - November/December 2011 - 10
Latin Finance - November/December 2011 - 11
Latin Finance - November/December 2011 - Contagion Risk
Latin Finance - November/December 2011 - 13
Latin Finance - November/December 2011 - 14
Latin Finance - November/December 2011 - 15
Latin Finance - November/December 2011 - 16
Latin Finance - November/December 2011 - 17
Latin Finance - November/December 2011 - 18
Latin Finance - November/December 2011 - 19
Latin Finance - November/December 2011 - 20
Latin Finance - November/December 2011 - 21
Latin Finance - November/December 2011 - Mexican Credit
Latin Finance - November/December 2011 - 23
Latin Finance - November/December 2011 - 24
Latin Finance - November/December 2011 - 25
Latin Finance - November/December 2011 - China Investment
Latin Finance - November/December 2011 - 27
Latin Finance - November/December 2011 - 28
Latin Finance - November/December 2011 - 29
Latin Finance - November/December 2011 - Loan Markets
Latin Finance - November/December 2011 - 31
Latin Finance - November/December 2011 - 32
Latin Finance - November/December 2011 - 33
Latin Finance - November/December 2011 - Mexico Banks
Latin Finance - November/December 2011 - 35
Latin Finance - November/December 2011 - Sub-Sovereign Debt
Latin Finance - November/December 2011 - 37
Latin Finance - November/December 2011 - Banks of the Year 2011
Latin Finance - November/December 2011 - 39
Latin Finance - November/December 2011 - 40
Latin Finance - November/December 2011 - 41
Latin Finance - November/December 2011 - 42
Latin Finance - November/December 2011 - 43
Latin Finance - November/December 2011 - 44
Latin Finance - November/December 2011 - 45
Latin Finance - November/December 2011 - 46
Latin Finance - November/December 2011 - 47
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Latin Finance - November/December 2011 - 49
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Latin Finance - November/December 2011 - 59
Latin Finance - November/December 2011 - 60
Latin Finance - November/December 2011 - Argentina Investor Report
Latin Finance - November/December 2011 - 62
Latin Finance - November/December 2011 - 63
Latin Finance - November/December 2011 - Reversal of Fortunes
Latin Finance - November/December 2011 - Cover3
Latin Finance - November/December 2011 - Cover4
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