In Latin America, a changing of the guard


Rob Dwyer
Published on:

The whole of Latin America, not just Mexico, faces an uncertain relationship with the US.

Visitors to this year’s Felaban conference in Buenos Aires might have been surprised by the overall upbeat tone. For, despite all the positivity surrounding the new, business-focused administration of president Mauricio Macri, Argentina’s banks still have to contend with a stringent and punitive regulatory environment.

Some of Cristina Kirchner’s basic rules have gone (interest rate caps and floors) but others, such as directed lending regulations to channel subsidised credits to SMEs, have been extended and increased. Other negative regulation is new – such as the proposed cut in credit and debit card fees that will hit many banks’ revenues. And the high tax rates – effective rates of around 35% – remain.

Furthermore, as delegates dispersed back to their offices around the region, they were facing up to a dramatic change in the region’s influential neighbour to the north. Donald Trump will ride into Washington on the back of a campaign that whipped up anti-establishment fervour and criticism of Wall Street.

But it didn’t take long for the markets to make the (probably correct) assessment that the swamp wouldn’t be drained after all. Rather, US banking regulation looks set to be repealed and corporate and tax rates slashed in a boon for the financial services industry.

In Argentina, Macri may – probably will – ease back on the regulatory and tax environment over time. Meanwhile Trump, once president, may find ways to place the blame for lack of jobs and redistributive tax policies southwards.

Beyond the fact that Mexico lies fully in harm’s way, there is little certainty about Trump’s protectionist pledges and their potential impact on Latin America – either directly on the vulnerable, small and open economies, or via the region’s relations with China, if a US trade war ignites.

Other impacts? Financing costs for companies and sovereigns alike could rise if US Treasuries begin to offer greater yield and capital outflows from EM countries accelerates. Investment, both inward and domestic, could fall as growth slows and external accounts weaken.