LatinFinance - Special Edition - August 2013 - 67

Not all sound
although latin america is by and large
“very well prepared” to face tighter liquidity conditions, ortiz warns that economies
and companies that require external financing are now “more vulnerable” to a reversal
in capital flows.
moreover, poor fiscal dynamics in some
latin american countries since the 2008
crisis means policymakers there will have
less room for maneuver.
“the fiscal situation in several latin
american economies has deteriorated and
so there’s not a lot of room there. current
account balances have also worsened. if
you are a country today with a large current
account deficit, with fiscal vulnerabilities
and with the prospect of a change in world
conditions implied by central banks’ gradual withdrawal of liquidity, you probably will
suffer,” he says.
“it’s important for emerging markets and
latin american countries which are vulnerable in this respect to take the appropriate
measures to mitigate these vulnerabilities
and make them better able to cope with the
volatility which i’m sure is going to be with
us for a long time.”
Such countries are better advised to review their fiscal buffers and to be prepared
for more volatility. “it’s never the case that
when you have a change in liquidity conditions, that things are smooth,” he says. “the
process of adjustment is never smooth, it’s
always disruptive. one has to be prepared
for that.”
Dangerous ideas
Yet in the wake of the global financial crisis,
a belief has taken hold that latin america is
better insulated than ever before against crisis. for a veteran crisis manager like ortiz,
such beliefs portend disaster. “the worst
thing that you could do would be to become
to read more, see www.latinfinance.com

NO AMMO: Latin America has
depleted its buffers after employing counter-cyclical policies, says
Grupo Financiero Banorte chairman Guillermo Ortiz

overly complacent,” he says.
“latin america did very well during the
2008 crisis: counter-cyclical policies were
used, which was not the case in previous
episodes of financial turbulence. But it’s
also true that a lot of ammunition was
used,” he says. “During the crisis they had
buffers. the difference today is that in some
cases these buffers are gone. latin america
has to focus on these buffers.”
Ultimately,
though, emerging markets have
learned not just resilience through crises
but also the ability
to find opportunities in them. in this
light, says ortiz, a
new world of slower
growth in the big
emerging markets,
including china and
Brazil, may not be
such a bad thing.
“this is not a
tragedy, to the extent
that the emerging
market world is able
to cope with this new
state of the world,
with commodity
prices that are not
rising and with capital flows that are not
so easily available,”
he says. “We will
adapt.”
one way to adapt,
says ortiz, is to
focus on structural
reforms to make
economies more competitive. in mexico,
the government of president enrique Peña
nieto, for example, has embarked on an
ambitious program of economic reforms,
which includes an overhaul of the infrastructure, financial and energy sectors.
“mexico’s overall prospects are quite good
within the emerging markets sphere,”
says ortiz. “things are much better aligned
than they have been in a decade and a
half.”
But even still, the main risk facing the
country is in actually carrying out the
reforms, he says.“it’s a huge accomplishment” to reach political agreement on reforms, he says. “But the risk for mexico now
is to implement them,” says ortiz. “that is
the main risk.” LF
©REUTERS

conditions are much sounder across the
region.
of critical importance is the fact that
many countries in latin america “have
adopted flexible exchange rates and inflation targeting which gives you a framework
to deal with volatility,” he says.
exchange rate flexibility will act as a
partial buffer to external shock, minimizing
the extent of domestic contraction. “the
emerging markets, and latin america in
particular, are well prepared to face this period of a withdrawal of resources,” he says.
“as long as they are not very violent, the
consequences should be very manageable.”

GUILLERMO ORTIZ

“The process of
adjusTmenT is never
smooTh, iT’s always
disrupTive”

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