What a difference 18 months can make. The consensus market view
at the beginning of last year was bullish on Latin America.
Brazil was growing again, having overcome its January 1999
crisis. Higher oil prices were supporting Colombia and
Venezuela. Even market sentiment towards Argentina was
improving, reflecting the hope that the newly elected
government of Fernando de la Rúa would decisively
overcome years of stagnation and deteriorating debt dynamics.
The End of An Asset Class?
Fund manager Mohamed A. El-Erian contemplates the future of emerging market assets in the aftermath of Argentina's crisis. Despite the gloomy outlook for the region, tighter fiscal policies, more transparent and market-compatible rules, improvements in debt management and greater international reserves now cushion most Latin American economies.
Today, market perceptions are far different. Argentina faces
a significant probability of default and/or protracted economic
stagnation. Other countries in the region are trying to cope
with Argentine contagion. In Brazil, exchange and interest
rates have overshot, and there is a growing risk that this
deviation may get embedded in the country's debt structure,
complicating an outlook already adversely impacted by the
domestic energy crisis.
Meanwhile, Colombia and Venezuela face more challenging
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