The IADB’s Hatched Haven Hurl

The annual Inter-American Development Bank meeting in Brazil struck a deliberate line juxtaposing European political and geopolitical unrest with regional “safe haven” assertion, as the organization’s own analysis questioned the rationale in light of commodity terms of trade reversal, higher fiscal and current account deficits with the latter averaging 2.5 percent of GDP, and hundreds of billion in overseas corporate borrowing in recent years. The host country got backing after prolonged distaste as the end of the rate-hike and start of the election cycle were imminent, although counter-heavyweight Mexico was at the center of skepticism over second-round structural reform progress. Mid-size Colombia got attention as its local bond index share was raised and pariahs Argentina and Venezuela were reconsidered for policy and exchange rate actions. Central American issuers may again be preparing tiny forays, but unease focused on the US and China and broader capital flow outlooks that have put in a vise even traditional investment-grade stalwarts like Chile, where President Bachelet has reassumed office on a greater tax platform. Abrupt ratings moves may have stabilized with Brazil on the junk cusp as other prime credits await institutional changes and speculative ones bottom on a welter of stagflation and state interference. Argentina’s 2015 presidential positioning has already begun with business-friendly candidates in the lead and the Peronist party split. Latin allies lent support for a US Supreme Court examination of the holdout dispute, as officials announced subsidy cuts and 3 percent annual growth below the GDP warrant payment trigger. Venezuelan President Maduro continued to denounce and arrest opposition figures and quash middle-class protests by force, as the Sicad-2 currency trading system debuted in the 50 bolivar/dollar range at an estimated one-tenth of overall volume. Pragmatists suggested a “crawling peg” onset, but the opening is offset by $10 billion in accumulated commercial debt arrears and energy joint venture commitments that may not be honored.

Colombia’s elections unfold against a backdrop of solid 4.5 percent GDP growth lifted by housing, infrastructure and FDI, as the free-trade network is expanded with the Pacific Alliance with flowers and textiles benefiting from the lower peso. The peace process grinds on with financial and training help for demobilized soldiers, as a fiscal rule limits the deficit while further reduction in the 15 percent portfolio investment withholding levy is ruled out. Peru still expects 6 percent economic expansion as public spending cushions the mining blow from diminished Chinese demand. With a balanced budget, resort to foreigners who hold half of local debt is not as risky as the authorities otherwise seek to de-dollarize the amount outstanding to the 70 percent sol target. Reserve requirements were recently loosened to maintain the fast credit pace which supervisors are watching but may be trumped by the upcoming political succession where the President’s spouse may try to establish refuge after enduring regular attacks.