Playing for High Stakes

Dec 1, 2002

Argentina's financial crisis has affected the region's markets far more deeply than many expected. It has changed the way investors and banks approach risk in Latin America.

Argentina's crisis spawned some catchy but inaccurate metaphors. The slowest-moving train wreck is one of the most memorable. Many international investors saw trouble coming in plenty of time and got out of the way. It was believed at the time that Argentina's collapse marked the end of financial market contagion in the developing world. As everyone now knows, that was not the case at all.

Brazil's public debt burden is reaching unsustainable levels, South American companies are finding credit harder to obtain than ever, and staying current on debt payments is an everyday struggle for many corporations. Nobody expected a crisis of such severity or complexity in Argentina. Uruguay's banks are collapsing. Venezuela is on the ropes. The implications are far-reaching since these events, especially the disaster in Argentina, have profoundly changed how markets view risk in Latin America.

Until recently, banks and traders would model their portfolios and...

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