Latin Finance - March/April 2011 - 38

finance minister scorecard

Finance Ministry Scorecard: The Top Four
Dealing with the unexpected Rank 1 Country Chile Minister(s) Felipe Larraín Pros Clear disaster recovery plan, innovative funding strategy Cons May get caught in currency fight

Colombia

Juan Carlos Echeverry

Clear disaster recovery plan; avoided currency intervention

Still might struggle with deficit

Peru

Mercedes Aráoz /Ismael Benavides

Strong performace despite elections and change of minister

Institution building is lacking

Mexico

Ernesto Cordero

Done well within constraints, issued 100-year bond

Inflation threat, resistance to reforms

Source: LatinFinance

budget spending and the share sale. Colombia’s change in finance ministers to Juan Carlos Echeverry from Oscar Zuluaga was well-received by markets, particularly for the new administration’s transparency and clarity. It has so far resisted the temptation to impose currency controls. “With Echeverry you have a clear technocrat at the finance ministry who has the full support from the presidency and the legislative branch to advance his agenda,” says Siobhan Morden, head of LatAm strategy at RBS. “The probability for success is high,” Morden says, of the chance for reform. Colombia paved the way for LatAm issuers of local currency denominated debt in the cross-border markets in April with an $800 million equivalent 2021 global TES issue. It braved the market to issue the first global domestic currency deal from LatAm since 2007. The government claimed it got pricing below the Libor rate in dollars. The transaction was so successful that three months later Colombia retapped for a further $500 million equivalent in July. Being the first to reopen the global local currency market was a risk, so the sovereign needed to be sure investors had a positive view on the currency and were ready to buy.

Revolving Door

Peru was the third of the trio receiving the highest marks from market watchers in the region for transparency and solid performance – despite a change in minister. Mercedes Aráoz stepped down in September to become the Apra party’s presidential candidate in the April elections, before quitting the race in January. She was replaced by Ismael Benavides at Hacienda. “The ministry delivered fiscal consolidation and a better than expected fiscal result,” says Alberto Ramos, LatAm economist at Goldman Sachs. “They resisted the temptation to spend ahead of an election year, particularly when the Apra candidate was not faring well. That level of restraint is quite notable.” In Mexico, Ernesto Cordero is seen by those surveyed as having retained the policies of Augustín Carstens since he took over in January 2010. Gerardo Rodriguez, a well known and respected public credit director, has been promoted to deputy finance minister, which should continue its strong reputation among international investors. Perhaps a victim of its own success – Mexico tends to get judged by a higher standard than other countries – critics say the ministry has done little wrong, but

nor has it impressed. After a rotten 2009 and amid rising drug-related violence that hurts key industries like tourism, Mexico faces continued challenges to match the growth of the rest of the region. Mexico also scored a first with the region’s first 100-year bond, which was criticized by the market for being a pricey way to make a statement. Mexico locked down a 6.1% yield for the next century, raising $1 billion into the bargain. Many questioned the necessity of such a transaction, though the sovereign did succeed in breaking the stereotypes of 100-year bonds as small-sized and drawing low investor participation.

Brazilian Black Eye

Brazil has taken a noticeable slip in this year’s rankings, with the IOF tax hikes in particular earning Guido Mantega few admirers among investors, analysts or economists. Brazil hiked the IOF withholding tax to 6% from 2% in 2010, though this seems to have done little to stem currency appreciation or huge inflows of capital as players around the globe buy into the Brazil growth story. Many outside of Brazil find the “currency war” rhetoric that accompanied the IOF raise to be

38 LatinFinance

March/April 2011

Latin Finance - March/April 2011

Table of Contents for the Digital Edition of Latin Finance - March/April 2011