The capital markets of South America’s smallest countries have still not developed much beyond the issuance of government bonds. Among the region’s small economies, only Uruguay and Bolivia have active corporate bond markets. The capital markets of Paraguay, Guyana and Suriname are dominated by government debt.
Franklin Nieder, senior financial economist at the Inter-American Development Bank, says: "Guyana is a highly indebted country and relies heavily on international donors. It has a significant local-currency debt market but a very limited secondary market. There is a tiny amount of trading of government paper.
"There is no corporate bond issuance and the stock exchange is very small. Private pension funds are the main holders of government debt.
"On the other hand, Suriname is not nearly so indebted. A lot of government paper is issued. There is some selling between its holders but it’s very limited. The government is working on trying to develop a secondary market at the moment."
He adds that Guyana, whose annual GDP is almost $1 billion, suffers from a severe brain drain and most educated people leave the country. The economy of Suriname, with an annual GDP of $2.2 billion, is growing at around 5% a year on the back of high commodity prices – its main export is bauxite.
Sebastian Briozzo, a sovereign credit ratings analyst at Standard & Poor’s, says that in Paraguay, whose GDP is $9.2 billion, the government is the only issuer in the local markets. It issued a $30 million bond at the end of last year, priced in US dollars and Paraguayan guaranies. The country has a very small private pension funds industry and most people pay into a state pension scheme.
Uruguay, whose GDP is $20.7 billion, has the most developed capital markets of the smaller economies, with a private pension funds industry valued at $3 billion and total corporate bond issuance of $600 million.
Rodrigo Ribeiro, director of advisory services at KPMG in Uruguay, says: "The country has a total of around 25 corporate bonds issued. Most corporate bonds range from $1 million to $10 million.
"The stock market is very small and has some 10 companies listed. Some Uruguayan companies are expressing an interest in listing on Brazil’s Bovespa index. Uruguay’s credit rating is directly below investment grade, and we expect the country to be one of the first in South America to achieve it next."
He adds that Uruguay was developing a mutual funds industry until there was a miscalculation of the payout on a fund in 1999 and the country suffered a major economic crisis between 2001 and 2002. International banks, such as Citi and ABN Amro, now offer wealthy Uruguayans mutual fund products from Ireland or Panama.
Ribeiro adds: "Uruguay also developed into an important offshore centre for Argentines and Brazilians because of its banking secrecy laws and the zero taxes on profits that benefited foreign companies incorporated here, known as Safis. However, the left-wing government of Tabare Vázquez has begun to tax these companies and is looking at changing the banking secrecy rules."
The capital markets of Bolivia, whose annual GDP is $11.9 billion, are suffering because of the country’s political instability.
Eduardo Quiroga, director of corporate finance at PriceWaterhouseCoopers in La Paz, says: "About 10 companies have issued corporate bonds. One of the most common recent trends has been the securitization of future cashflows – 10 companies did this last year.
"We are also helping the authorities to draft new regulations relating to leasing and we think that it is an industry that could grow rapidly in the country."
The country’s total private pension funds amount to $2.2 billion. A total of $40 million of securitization bonds have been issued. Last year, total corporate bond issuance was $82 million, while total government bond issuance was $40 million.