Small but sound sovereigns attract cash-rich investors
It’s not all bad. The world of international finance works in mysterious ways, and right now it looks as though central America is actually a beneficiary of Argentina’s default and the US recession.
No-one expected this. After the Mexican economic crisis of 1994-95, the tequila effect, as the subsequent contagion was known, devastated the Latin American region for years. But today, the tango effect of Argentina's $95 billion bond default seems barely to have spilled over into Brazil. Even Uruguay, home from home for wealthy Argentines, came to the market with a $250 million bond in November.
The Dominican Republic started the ball rolling as early as September 20, with a deal originally slated for September 11. The $500 million five-year bond paid came at a premium of just 25bp over the expected price on September 11, largely because of the size and strength of the pre-tragedy order book.
By the beginning of November, Guatemala and Panama had both issued bonds from scratch, and there was talk of a Barbados deal. Total bond issuance for the region will top $3 billion this year, up from $1.1 billion in 1999 and $1.4 billion in 2000.
And central American financial activity is not confined to sovereign bond issues: at the beginning of November, the largest supermarket operators in the region pooled their resources into a joint-venture holding company called Carhco, which immediately became the number one supermarket company in Costa Rica, Guatemala, Honduras and Nicaragua, with a strong presence in El Salvador and aspirations in Panama.