From Decoupling to Deleveraging and Divergence Benjamín Wolf
Which went up in
flames faster? This
effigy of David
Murcia Guzmán or
the alleged profits
from D. M.G?
Haitian community out
of $23.4 million, and
against Andres Pimstein,
the Chilean-American
owner of The Bottom
Line of South Florida,
Inc. and Summit Trading
LLC, for an alleged $30
million Ponzi scheme. In
February, the Antigua-based Stanford Financial
became the subject of
an SEC investigation for
investing as much as $1.6
billion in a Ponzi scheme.
The credit meltdown
of financial institutions
revealed both a string of
corrupt financiers and the
lack of financial oversight in many economies.
Victims range from the
wealthy elite in Madoff’s
inner circle to working-class Colombians who
entrusted their life savings
with hopes of big returns.
However, what many of
these schemes have in
common are charismatic throughout the region,
perpetrators who gulled but “it’s a question as to
investors, and loose regula- whether the oversight and
tory environments that regulating institutions do
allowed such schemes to their jobs.” As for the SEC,
proliferate. Kaufmann says its laissez-
“These schemes often faire mentality harks back
rely on a type of social “to an era when less over-network and connections sight was considered bet-to those networks to create ter for business growth.”
trust and credibility,” says He points to Canada and
Daniel Kaufmann, senior his native Chile as two
fellow of global economy countries with relatively
and development at the strong regulatory over-Brookings Institution in sight that, as a result, were
Washington DC. Madoff relatively unscathed by
served on the boards financial corruption.
of several nonprofit orga- “This was an era when
nizations and New York all financial institutions—
security commissions; with few exceptions—
Theodule cultivated many took huge financial risk,”
of his investor relation- says Kaufmann. “Some
ships through Haitian took them with leveraged
church communities. derivatives. Others with
Many are left wondering Madoff.” Those, he notes,
how this could have gone were just part of the
on for so long. Kaufmann “palette of risky products,”
argues that regulatory that took investors for
laws were largely similar a ride.
in earnest. In the meantime, the leading markets are
likely to continue to attract the vast majority of foreign capital allocated to Latin America.
AP Photo/Sky GilbAr
Mexico occupies a middle ground among large
Latin American capital markets. Though its sovereign
debt earned investment-grade status nearly a decade
ago and it was able to access international capital markets as recently as February 2009, its growth prospects
remain limited in 2009 due to its strong ties to the
U. S. economy. Despite having the second largest stock
market in Latin America, even during the peak of market activity in 2006 and 2007, liquidity lagged behind
Brazil and the IPO market never flourished.
In Argentina and Venezuela, growth projections
for 2009 are at or below zero, and inflation is becoming unmanageable. All capital markets activity,
including the issuance of sovereign debt, is likely to
remain extremely limited in both countries in the
medium term, as poor management of macroeconomic policies and the steep decline in commodities prices will continue to hinder growth. Increased
political risk, whether actual or perceived, will further constrain Argentina and Venezuela’s access to
international capital markets. With smaller economies such as Bolivia, Ecuador and Paraguay barely
registering any capital markets activity, the financial crisis has brought about even greater divergence
bet ween leading and lagging capital markets in their
spring 2009
americas quarterly 61
