LatAm focuses on ways to guard against protectionist policies

LatAm focuses on ways to guard against protectionist policies

Chile Colombia Peru Honduras Dominican Republic Economy & Policy Corporate & Sovereign Strategy

Latin American countries are emphasizing the need to integrate their economies and increase intraregional trade and investment to counter a surge in protectionist rhetoric in the US and other developed countries, said panelists at LatinFinance’s 14th Annual IDB Breakfast in Asuncion, Paraguay.

"After the commodities cycle, there is another [cycle] that is starting to impact Latin America, and that is protectionism in developed countries," Alejandro Micco, the undersecretary of finance for Chile, said. "The idea that growth has moved inward has translated into things like Brexit and the subject of NAFTA."

Despite US President Donald Trump’s talk of a trade tariffs, the existing economic cycle remains positive for emerging market (EM) investments. Graham Stock, the head of EM sovereign strategy at BlueBay Asset Management, said growth in Southeast Asia is having a knock-on effect on the global economy and propelled investments in emerging markets.

"There are risks to this outlook, which could come from policy in the US," he said. "But we have seen a recovery from 2008-2009 that is helped by monetary policy put in place and sensible economic policies."

Colombian Finance Minister Mauricio Cardenas said the dangers of protectionist rhetoric went beyond tariffs and the repatriation of capital from abroad and he urged Latin America's economies to be prepared. "There is a big contingency here to do with US domestic policies that can impact us," he said. "Analysts are putting most emphasis on Mexico, but it goes beyond."

Alexei Remizov, managing director and co-head of Latin America debt capital markets at HSBC, said rhetoric from the Trump administration had toned down. "This was a key risk for emerging market policies," he said.

Several Latin American countries, including Colombia and Honduras, anticipated a hike in interest rates by the US Federal Reserve and took advantage of market conditions to raise external debt in January, one of the busiest months in years for new sovereign issues in the region.

"The markets have become normal again," Cardenas said. "International conditions have improved. There is less uncertainty, more liquidity and appetite for emerging market debt."

Remizov added that the fixed income market is seeing limited fiscal stimulus in the US, which has prompted US Treasury bonds’ yield curve to tighten.

Market shocks such as Trump’s victory last November and Great Britain’s vote to leave the European Union halted new bond issues, but the impact proved temporary.

Christopher Mann, a partner at Sullivan & Cromwell, said these "crises” could have had a lasting impact but he applauded Latin American economies’ robust structures, which now served as shock absorbers.

"There is a lot of sophisticated planning being done in a responsible way, and hopefully we will continue to see this approach in most cases," he said.

The Dominican Republic’s Finance Minister Donald Guerrero said low oil prices have helped the country lower debt and he expects growth in the US to benefit the Caribbean island.

"The dynamics in the US will help us," he said. "We are seeing more tourists in our country with a strong currency."

He also said international investors are showing increased interest in the Dominican Republic’s fixed income instruments.

Tackling corruption

Corruption and natural disasters, however, have dented growth for some countries in Latin America and the Caribbean.

Peru’s Finance Minister Alfredo Thorne said the Odebrecht bribery scandal has led the government to revise its GDP forecasts but he added that the country needs to keep driving investments in the infrastructure sector. 

Thorne avoided naming Odebrecht on the panel, referring to it as "the Brazilian constructor," but he said the company was "leaving now" and that Peru has advanced plans to move infrastructure projects forward. "Now we have to transfer these projects to new contractors," he said.

Colombia’s Cardenas warned of the threat of corruption and its potential impact on the region but he emphasized the need to retender the affected projects.

"We have to be immune and change contractors so there is no interruption," he said. "It shows a deeper issue, which has to do with a lack of ethics in some multinationals. Our systems need to be more resilient to this influence."

Several Latin American countries also said they are looking to strengthen efforts to respond to the economic impact of natural disasters. Heavy rainfall in Peru has caused landslides and flash floods this year. Over the weekend, a mudslide in Colombia killed more than 250 people.

Cardenas said to respond to the natural disasters impacting the Andean region, members of the trade bloc Pacific Alliance (PA), which includes Chile, Colombia, Peru and Mexico, are working on issuing a catastrophe bond. The four countries plan to meet in July in Cali, Colombia, to finalize their plans.

Chile’s Micco said the PA members were also focused on deepening economic ties and increasing trade.

"If we are not open [towards other markets], then trade will not grow," Micco said. "Chile has a commitment to keep itself open to the world and capital movement."