Road Map Introduction and purpose The crisis. Why? How long? Regulatory Changes How does this affect Latam? Conclusion, Follow‐up
Introduction and Purpose You are in a high pressure environment. You need to adapt your business to the crisis. You don’t have time. You have more information than you can process. I will give an overview about what’s going on, how it affects the region and what I recommend to pay attention to in this environment.
Crisis: Why? For how long? Excess liquidity: too much for too long. Technological change made regulations obsolete. Over leverage. Learning from the 30’s. 3 mistakes. US can afford countercyclical measures. Improvement by 2010 if there is no trade war and China domestic market resists.
Regulations Was the 90’s deregulation a mistake? Capital markets, risk slicing, derivatives. Regulations after the 30’s crisis. Divide and focus on commercial banks. New regulations coming? How would they be? Regulations after 2008 and 09. Comprehensive approach. Technological change will continue. Limit leverage for everybody and more self regulation.
How does this affect Latam? Transmission channels: less exports (volume and price), remittances, commodity prices and access to international capital markets. Latam is a commodity play. China drives commodities. Who can make countercyclical policies ? 6 indicators: Savings during the expansion/High reserves/Strong local banking system/Deep local capital markets/Access to international markets and multilaterals/FDI attraction.
How does this affect Latam? Cont. After the best 5 years in the region in decades we reduced poverty from 40+% to 30+% (even with several weak governments, thanks to the commodity cycle). I think that we will loose 50% of this improvement . It will be different by countries and the difference will come from their ability to implement countercyclical policy effectively (6 points).
Conclusions and follow up Track if the big 4 (US, EU, China and Japan) continue to avoid the 3 mistakes from the 30’s. US activity levels. China domestic market and commodity prices. Current account and sustainability of countercyclical policies by country in Latam. Have a business model sustainable in a continent where more than 1/3 of the population is poor.