Latin American Credit and DebT - Giles Bischoff
With Brazil’s economy having contracted by an alarming 2.6%, the spotlight seems to be shifting now from Brazil to Argentina as investors who are more optimistic about the Latin American region speak of a silver lining amidst low oil prices and Fed rate hikes. That silver lining, with nearly 30% yearly growth across the broader part of Latin America, is the market for credit and consumer lending. Not only does this give a much needed boost to consumer spending, it also incentives the banking industry to de-dollarize their countries’ economies. As lending becomes increasingly more popular in Latin America, consumers will effectively need to convert their dollars to their countries’ currencies and bring their money from abroad back home to make interest payments. This props up the value of their respective currencies, and reduces risks of hyper inflation, the seemingly ever-recurring scourge that has continually plagued Latin America.
Moreover, it appears that hope springs eternal as long as Mauricio Macri continues to talk change in Argentina. Moody’s upgraded their credit ratings of the country’s debt from stable to positive in November after the Argentinian presidential hopeful, Mauricio, was elected to take office on the 10th of December in 2015. This optimism arises from the confidence President Macri continues to instil that his resolution for the Argentinian debt holdout episode will come to fruition.
Unfortunately, there is still much needed for Latin America to attain more positive credit ratings. After all, how confident is Moody’s really in Mauricio? Apparently only Caa confident—as in Argentina’s credit rating gets a Caa for how confident Moody’s really is in that Argentina will be able to make a return at the international level to credit markets in order to borrow abroad and service its debts. Furthermore, the Chilean government expects that approximately half of its consumer lending is provided for by unregulated sources, and, dismally so, much the same can be said for most other Latin American countries. This is a problem that will most certainly need to be addressed for the region to continue to prosper from the ever-growing credit market, otherwise we could likely be witnessing another massive credit bubble. Nonetheless, Argentina appears to be taking a step in the right direction towards financial stability. As long as Macri continues to prove his legitimacy as an anti-establishment, anti-corruption politician, introducing more economically sound policies as well as spurring wide-spread financial regulation, Argentina will likely take to the helm, surpassing Brazil in order to lead the Latin American region into steadier waters.