LatAm sovereigns hit the “show-me” phase
Good intentions are not enough — investors are demanding clear improvements from sovereign borrowers
Despite Latin American governments outlining intentions to
improve fiscal dynamics, investors want to see proof of action,
LatinFinance’s annual IDB Breakfast Roundtable was
told on Friday.
"After you’ve realized that an adjustment needs
to take place, then there needs to be the
'show-me’ phase," said Sean Newman, portfolio
manager at Invesco. "With Brazil, with Costa Rica, with other
Central American countries, we’ve now entered the
The comment came as debt management officials insisted their
countries were on the right track.
Costa Rica, which has second-round elections on April 6,
has tried to keep investors appraised of the likely
developments ahead, Jordi Prat, vice minister for finance and
director of public credit, told the audience.
"We’ve tried to explain to the market that [the
new government is] going to do things that need to be done," he
said, in reference to rising CDS spreads after the first round
of voting. "When you have 6% GDP deficit, something has to be
done. The investors have still been giving us the benefit of
Brazil’s head of public credit, Paulo Valle,
pointed to stabilizing measures that the sovereign had taken in
recent years, pointing in particular to a sharp
increase in foreign reserves since 2008.
"We have a lot of cushions to face any volatility," he
told the breakfast, which took place on the sidelines of the
Bank summit in Bahia, Brazil. "We have some noise this year
because of the electoral process. But we believe that we still
have a very good position to face a new volatility
Brazil’s local currency debt was attractive,
said Marzo Bernardi, executive director at Western Asset
Management, and it benefits from sound liquidity. That was a
view shared by Newman, although he added that further
adjustments were needed.
"We have a favourable view on the local currency
instrument — less so on the external," said Newman.
"The central bank has done a good job in making adjustment on
monetary side, and now we need to see a similar adjustment on
the fiscal side." LF