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"The countries of Latin America need to look for opportunities to make credit and mortgages more readily available"
Anna Cabral, US Treasury |
"In the US upwards of 65% of the population are home owners and this is something that countries in Latin America would like," Hank Paulson, US Treasury secretary, told Euromoney during last month’s Inter-American Development Bank meeting in Miami. Paulson’s colleague, Anna Cabral, US treasurer, agrees. "The countries of Latin America need to look for opportunities to make credit and mortgages more readily available," she says.
But as the US comes to terms with its sub-prime mortgage crisis, Cabral stresses that Latin nations need to act with caution in developing their mortgage markets. "Innovation and creativity in the mortgage market is important but it has to be monitored," she says. "The type of innovation that led to a substantial increase in home ownership in the US is not a trend we want to reverse but going forward we need to make sure people are better protected." To that end, the US Treasury is engaged in conversations with its counterparts in certain countries in Latin America, such as Honduras, El Salvador and Mexico, about how they can develop their financial systems.
Financial literacy
El Salvador, for example, is now trying to create a bankers’ association, along the lines of the one in the US. In addition, the El Salvadorian government is particularly interested in developing two training days at which officials from the US Treasury will "teach children how to save" and "get smart about credit". Cabral is clear what advice she wants to give to Latin America. "We have been emphasizing the need for financial literacy," she says.
"We are living in an increasingly complex world and there are many more financial tools available to the consumer ...these governments must make sure people understand how to use these tools. We don’t want people [in Latin America] doing what some people have done in the US," says Cabral.
Over-complexity
In addition, the US Treasury is keen to impress upon Latin policymakers how important it is that the region’s banks continue to work on tools that can release new credit for mortgages and small businesses. "Innovation has always preceded regulation and that is by design," says Paulson. "But the reason this turmoil has gone on longer than those of the past is that this innovation has led to over-complexity in a number of instances. I think a good piece of advice [to Latin American governments] would be to discourage over-complexity."
Still, Paulson adds that the region’s governments need to continue with reforms. "The biggest risk Latin America faces in the intermediate term is that [it doesn’t] move fast enough to share economic growth throughout the population," he says.