Category: Daily Brief

The International Monetary Fund announced that it is in discussions with Uruguay over a new loan accord, and the two sides may announce an agreement this week. Uruguay needs new loans to keep up payments on $13.2 billion of international debt. President Tabare Vazquez, inaugurated in March, said the country would maintain budget and monetary goals under the current $3 billion IMF agreement in order to obtain new loans from the lender.

Emerging market bonds declined in anticipation that General Motors and Ford Motor will be cut to junk, overwhelming the market for high-yield, high-risk securities. Should both companies lose their investment-grade credit ratings, they would add $80 billion to high-yield markets. The increase may force yields higher on other junk bonds as investors seek compensation for increased risk. Brazil’s benchmark bond due in 2040 was down $2.25 Thursday to $112.1, pushing its yield up to 9.77 percent.

Uruguay postponed a planned $300 million bond offering Thursday after emerging market bonds fell. The country started offering12-year securities Wednesday in its first debt sale since it conducted a $5.3 billion bond swap in 2003 that Standard & Poor’s called a default. Uruguay’s sovereign debt is rated B3 by Moody’s Investors Service and B by S&P, six and five levels below investment grade.

Venezuela plans to change oil contracts for the second time in seven months, forcing ChevronTexaco and other companies to pay more in taxes from their operations in the country. In October, Venezuelan President Hugo Chavez unilaterally raised the royalties on shareholders in four heavy-oil joint ventures, saying the companies were paying too little.

Twice a year, the international financial community – which is made up of thousands of bankers and bureaucrats – comes together for a few days to network, listen to speeches, do deals and go partying. These annual gatherings are held around the meetings of the Inter-American Development in April and the International Monetary Fund in September. More to the point, discussions and negotiations at these meetings are often overshadowed by some catastrophic Latin American crisis.

But it was clear at this year’s IADB meeting – which has just ended – that Latin America is of less and less interest to the outside world. Holding the meetings in remote Okinawa did not ease this sense of isolation. In a way, the lack of interest is positive: there are no crises on the horizon in Latin America. But instead of patting each other on the back, Latin Americans are agonizing about their irrelevance.

Many bankers are going on to Tokyo, Shanghai, Beijing, Hong Kong, Taipei, Singapore and even Mumbai to hunt down investors or possible M&A clients. Ten or 20 years ago, Asia was mostly a backward region disconnected from global markets. Now, Latin America is falling behind Asia. The good news is that leaders, bankers and business leaders – once stunned into inaction by the rise of China – are reacting. Companies are becoming more international. Governments are sticking to sound economic and social policies. With time, growth rates may raise to 5%-6% a year. That would be a triumph for Latin America but mediocre in comparison with Asia.