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Capital Markets

Debt: Latin America breaks new boundaries

The region’s debt markets have withstood the convulsions in western Europe with surprising ease. Has the global perception of risk irrevocably changed or will the region eventually get caught up in the maelstrom? Sudip Roy reports.

THE NATURAL ORDER of the bond markets is in a spin. The headlines are full of IMF bailouts, debt restructurings and fiscal austerity. But for once the crisis is not in the emerging markets. Instead it’s Europe’s policymakers that are struggling to prevent sovereign debt defaults from tearing their region apart. In contrast, their counterparts in the developing world look on as concerned spectators. Nowhere more so than in Latin America, which has experienced several debt crises over the past 30 years but today is a byword for financial stability compared with Europe and the US.

There are pockets of distress – Argentina, Venezuela, Bolivia and Ecuador are all on the margins of financial rectitude. But it’s a sign of how far Latin America has progressed over the past decade that the wider region is able to shake off negative news out of these trouble spots with barely a jitter. Most of Latin America’s most important economies, such as Brazil, Mexico, Chile and Peru, are investment-grade. Significantly, although they all have fiscal challenges, they are not of the same magnitude as those faced in the west. Public-sector debt in all the main Latin American economies, for example, is below the 90% tipping point at which, according to economists Ken Rogoff and Carmen Rienhart, economic growth begins to take a hit.

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