Tuesday, March 18, 2008

'Assessment is cautiously positive'- IMF

The Financial Market Crisis and Risks for Latin America;
Asset price bubbles? Are there similar asset price bubbles that could threaten Latin America? Here the assessment is cautiously positive. No substantial exposure is reported in Latin America to the subprime-related distressed credit products that we have seen in the United States, even though the trend in some countries has been toward increased domestic securitization. It has helped that in many countries, including here in Brazil, regulatory frameworks have made it difficult for banks to either buy the kind of structured products that have been at the center of events in the United States or accumulate significant off-balance sheet exposures. Second, housing price trends do not indicate the kind of price run-up that we have seen in the United States and some European economies, although the data here is very incomplete. Against this, equities have boomed in the region, especially for commodity-linked companies, which account for a substantial share of market capitalization in Brazil, Peru, and Chile. It should help that, broadly speaking, valuations appear in line with real earnings prospects, although the performance of more commodity-dependent stock markets will depend greatly on the impact on global commodity prices if a global recession were to unfold.

The international role of the euro and its potential in Latin America

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