Perspectiva Macroeconomica y Tendencias en el Mercado de Deuda Latinoamericano: ¿El viraje hacia instrumentos de Fondeo Domesticos?

After overcoming various financial crises in the mid-90's and early millennium (Tequila, Asian, Russian, Brazil, Argentina and Ecuador) Latin America found a proper environment conducive to reach sustained growth and macroeconomic stability. Endogenous elements - such as credit growth, the implementation of countercyclical funds, prudential public finances management, the establishment of inflation targets, the incentive to accumulate reserves, healthier external balances- and exogenous factors, mainly linked to an increase in commodity prices and low international interest rates, favored a scenario of higher output growth for the region as a whole. During these last years Latin American companies have been able to increase their production capacity, expand regionally and globally. Governments have made huge investment projects related to infrastructure and communications. The latter was facilitated by the context described above as well as the optimism created by greater political stability. Correspondingly, it was also driven by the amount of new funding instruments that have been available. There is whole range of financial products; from local to global emissions, settled in foreign or local currency, extension of liquidity lines, mixed instruments powered by multilateral banks, use of collateral for export finance, structured asset-backed securities are just a glimpse of all the financial spectrum of possibilities. These changes have provided governments the necessary tools to mitigate the impacts of the global financial crisis, especially on their most vulnerable populations. However, in the advent of a potential decline in growth from 2011-2013 -with respect to the strong rebound in 2010- it is expected that a number of factors will limit the margin of actions that the authorities have to implement further countercyclical policies. Thus, the delayed recovery of the U.S., the deepening of the European crisis, a possible reversal of the terms of trade, less favorable external accounts and domestic inflationary processes will undermine the responsiveness of governments to the new situation. In this context it is of great importance to understand and appreciate relevant trends in some of the sources capable of enabling growth financing, while encouraging investment and job creation. This paper focuses on the characteristics and trends in Latin American debt capital markets, highlighting the importance of having domestic sources of funding as well as local currency issues. The investigation continues the discussion presented by Carmen Reinhart and Kenneth Rogoff (2008) about "the forgotten history of domestic debt" and research studies elaborated by Serge Jeanneau and Camilo Tovar (2008) in relation to local currency bond issues. It also exhibits the advantages and disadvantages of these trends; revisiting E. Cavallo’s question (2010) on how safe is really the new debt composition. To introduce the analysis of debt markets in a framework and a chronological conjuncture, the starting point of this study is an assessment form based on the behavior of key macroeconomic variables. First the macroeconomic fundamentals that underpin the functioning of financial markets are measured, examining whether major changes have occurred or just temporary responses have been randomly implemented (something common in the region). Secondly, an overview of the Latin American debt markets will be presented, focusing on the factors that have allowed their recent development. Afterwards, the main characteristics of local bond markets and current trends will be exhibit. This includes revealing trends in local currency debt issuances, prevailing actors as well as discussing the role of regional and multilateral banks. This work is intended to be "communicated" to a diverse audience: academia, public policy makers and private sector. In this sense it has sought to provide concrete examples that account for the trends found. Data sources used include ECLAC statistics, the database of the Inter-American Development, Bank of International Settlements (BIS), World Bank database, multiple International Monetary Fund (IMF) datasets, OECD reports and statistics, the Institute of International Finance (IIF), Emerging Markets Trading Association (EMTA), official data from central banks, investment banks research and rating agencies. Data from Bond Radar, Bloomberg and Dealogic was also utilized, as well as data sets constructed by researchers