By Taimur Ahmad
In September 2006, William Rhodes warned of a looming crisis.
To the then senior vice-chairman at Citigroup, all the tell
tale signs were there - and he was worried.
This was not the first approaching crisis the veteran banker
had recognized. Having sat at the heart of international
finance for over three decades, Rhodes had been involved in
every major debt crisis around the world since the 1970s;
reading the signs of an impending bust was something of a
second nature to him.
But this time was different - and the consequences, he felt,
For Rhodes was talking about a downturn in the US housing
market, which he believed risked turning into a full-blown
crash that could savage the US economy - and wreak untold havoc
on the global economy. "What kind of slowdown will we get and
how deep will it be?" he said in an interview at the time with
Emerging Markets, a sister publication to LatinFinance.
By February of the following year, the first major US
subprime mortgage loss would emerge in a domestic credit crunch
that 18 months later would snowball into the worst global
financial crisis since the Great Depression.
Seven years on, Rhodes has retired from Citigroup, following
a 53-year career with the bank. But he remains no less attuned
to the risks in today's global marketplace.
The one lesson he can impart from his career? "No country
escapes the risk of sovereign crisis," he tells LatinFinance.
"Any country that does not take the proper steps
vis-à-vis the economy is always liable to run into
That lesson, he says, is as profound for Europe today as for
any emerging market. "Any time you take something for granted,
it's dangerous. Take the eurozone. Back in 2010, whenever
anyone tried to point out the problems in their southern
periphery the response was: we're developed countries, not
Four eurozone sovereigns have been bailed out since the
region's debt crisis began in late 2009.
For Latin America - having emerged from the global financial
crisis relatively unscathed - the lesson, says Rhodes, is that
hubris never pays. This is especially true today in the face of
an ever more challenging external environment.
"Latin Americans have got to understand that just because
they didn't fall into some of the pitfalls of the Europeans and
US in the Great Recession, it doesn't mean it's not going to be
a challenging world."
Rhodes says the main challenges to the region are a slowdown
in global growth and an associated drop in world trade. "It
will be a more challenging world because global growth is under
pressure and will be for the next couple of years. Trade has
also stumbled badly," he says. "That's the challenge for Latin
Turn, turn, turn
For Rhodes, the cycle has once again turned, and having done
well during the global recession, "the emerging markets today
are facing a period of difficult growth. The next couple of
years are not going to be easy."
Chief among his worries is the impact of a slowing Chinese
economy, which Rhodes says has long been a tailwind for Latin
growth. "There's no doubt that double-digit growth in China is
gone, we're not going to see that again. The question is where
is it going to level off?"
While China's authorities expect a 7.5% growth rate in 2013,
a growing number of analysts reckon that its rate of expansion
will drop significantly over the long-term as the country's
growth model changes. "Over the longer-run they're going to
have a tough time to keep to 7%," says Rhodes.
The implications for commodities trade will be significant,
he says. "There's no doubt that there will not be the volume of
commodities imports by China as there was with double-digit
growth," he says. "That has had and will continue to have an
impact on Latin America."
He also points to the much-publicized risks of tighter
money, as developed world interest rates ultimately rise.
"Eventually interest rates are going to rise and it's going to
have its implications - across the board. Just like when QE was
introduced and it had an impact on emerging market currencies,
we will see the reverse, that's inevitable. It's just
inevitable that there will be some effect on Latin
Yet the combined effects of these two challenges need not be
disastrous for the region, Rhodes insists. "Latin America can't
sit back and say 'we are emerging from this and we don't have
any problems'," he says. "They should take the opportunity from
crises elsewhere and move ahead with structural reforms and
deregulation and to build institutions. This will be key."