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Latin American banks: Why a slowdown won’t lead to a meltdown

Latin American bankers appear confident that the region can continue to avoid the worst of the US contagion.

This time last year the financial services industry in Latin America was in the middle of a golden period, and as the first few months of 2008 pass there are still glimmers of hope that the region will continue to shine despite storm clouds gathering over the US.

Strong balance sheets for banks and corporates; a commodities boom, albeit one probably entering its final stage; and improved fiscal accounts for many of the region’s countries put Latin America in a strong position to cope with a US recession. But there is also cause for concern. Irrespective of whether one buys into the decoupling argument or not, one thing is certain – as the US enters a downturn, Latin America will be affected.

Blue-chip companies in Brazil and Mexico are still positive about the region’s prospects. Leading CFOs say that international banks are, on the whole, maintaining their coverage levels, and local financial institutions are offering more than generous credit lines to their corporates.

Despite this optimism there are problems emerging in the region’s capital markets.

In February, Petrobras pulled its planned $500 million bond issue after it was unable to obtain the pricing it had sought.

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