Local savings limit outflows, but risks remain
Expanding local pension funds have helped stem losses in LatAm as US rates rise, but risk of political change remains a fundamental worry, says Celfin Capital's vice president.
The exponential growth of private pension funds in Latin America has cut the region's dependence on global capital inflows from an "absolute" one, to a "marginal" one, said Jorge Errázuriz, vice president of Celfin Capital.
As US Treasury rates have climbed in recent months, global investors have yanked money from emerging market bond and equity funds in anticipation of better returns closer to home. Investors took $1.3bn out of emerging market debt funds and $2.09bn out of EM equity funds in the week to July 10.
"[Latin America] is no longer dependent on the flows, and the outflows have not stopped investment projects," said Errázuriz. "Chile continues to grow, it's forecast to grow 4.7% this year."
At the same time, outflows are the seed of future inflows, he added.
Yet there are still risks ahead. The most worrying is a change in political direction, Errázuriz said.
"If in Mexico, Colombia, Peru and Chile the political will changes from wanting to advance with integration, that could be a step backwards," he said.
"And if the economic policy in these countries becomes more protectionist, less in favor of investment, that worries me."
He pointed to widespread protests in Brazil, which have forced President Dilma Rousseff to offer a series of conciliatory gestures. Such risks were not just limited to Brazil, he said.
"In these countries, there is always a risk – including here in Chile," he said.
The full interview with Jorge Errázuriz will appear in LatinFinance's 25th Anniversary edition, published next month. See www.latinfinance.com/quartercentury for details. LF