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The New Face of Latin America: Financial Flows, Markets and Institutions in the 1990s

Published online by Cambridge University Press:  05 February 2009

John H. Welch
John H. Welch
Affiliation:
Senior Economist in the Research Department of the Federal Reserve Bank of Dallas.
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Extract

The gains and difficulties Latin American countries face from financial market development and liberalisation have received much attention in current economic literature. Nevertheless, significant issues have received little or no attention, even though the success of these efforts depends upon them. The purpose of this article is to explore the benefits from open and developed – two words that are not necessarily synonymous – financial and capital markets in Latin America and possible important obstacles which will be faced in the remainder of the 1990s.

Type
Articles
Information
Journal of Latin American Studies , Volume 25 , Issue 1 , February 1993 , pp. 1 - 24
Copyright
Copyright © Cambridge University Press 1993

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References

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16 Colombia maintained significant barriers to entry in financial services in the 1980s in spite of more or less market-determined interest rates.

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21 See Welch, John H., Capital Markets and the Development Process: The Case of Brazil (London, 1992)Google Scholar.

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23 I made this same point in Welch, ‘Debt Servicing’.

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26 Dornbusch, Rudiger and Fischer, Stanley, ‘Moderate Inflation’, NBER Working Paper no. 5,896 (11 1991)Google Scholar and Dornbusch, Rudiger, Sturzenegger, Federico and Wolf, Holger, ‘Extreme Inflation: Dynamics and Stabilization’, Brookings Papers on Economic Activity, no. 2 (1990)Google Scholar.

27 See Welch ‘Debt Servicing’, and Dornbusch, Sturzenegger and Wolf, ‘Extreme Inflation’.

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36 One should note that Demsetz, Harold and Lehn, Kenneth, ‘The Structure of Corporate Ownership: Causes and Consequences’, Journal of Political Economy, vol. 93, no. 61 (12 1985)CrossRefGoogle Scholar, find no evidence for the Modern Corporation proposition of Berle and Means. Also see Blair, Margaret, ‘Who's in Charge Here?: How Changes in Corporate Finance Are Shaping Corporate Governance’, The Brookings Review (Fall 1991)Google Scholar; and Demsetz, Harold, ‘Corporate Control, Insider Trading, and Rates of Return’, American Economic Review, vol. 76, no. 2 (05 1986)Google Scholar.

37 This discussion is not meant to underestimate the abilities of private sector entrepreneurs in Latin America. Clearly, the private firms in Argentina, Brazil (especially in São Paulo), Chile and Mexico (especially in Monterrey) are among the most dynamic in the world. Their ownership structure, however, developed in a different context from the one envisioned in the reforms currently taking place. My arguments, therefore, concentrate on the importance of corporate structure in the new liberalisation.

38 Brito, Ney O. and Touriel, Hélio, ‘A Estrutura Empresarial Brasileira e a Atuação do BNDE no Mercado de Capitais’, Revista de Administração, vol. 15, no. 2 (06 1980)Google Scholar.

39 Demsetz and Lehn, ‘The Structure of Corporate Ownership’.

40 McConnell and Henri Servaes, ‘Additional Evidence’.

41 For a detailed discussion see Welch, Capital Markets, chapter 4.

42 Notable exceptions are Paranapanema and Souza Cruz, two private sector companies who represent a significant share of the Brazilian stock market.

43 Ness, Walter L., ‘A Empresa Estatal no Mercado de Capitals’, Revista Brasileira de Mercado de Capitais, vol. 4, no. 12 (09–12 1978)Google Scholar and Novaes, Ana Dolores, ‘Rentabilidade e Risco: Empresas Estatais versus Empresas Privadas’, Revista Brasileira de Economica, vol. 44, no. 1 (01–03 1990)Google Scholar.

44 Lichtenberg, Frank R. and Pushner, George M., ‘Ownership Structure and Corporate Performance in Japan’, NBER Working Paper no. 4,092 (06 1992)Google Scholar.

45 For a review of privatisation programmes, see Vickers, John and Yarrow, George, ‘Economic Perspectives on Privatization’, journal of Economic Perspectives, vol. 5, no. 2 (Spring 1991)CrossRefGoogle Scholar; Vickers, John and Yarro, George, Privatization: An Economic Analysis (Cambridge, 1988)Google Scholar, and McComb, Robert P., ‘Privatization in LDCs’, mimeo, Texas Tech University (1990)Google Scholar.

46 The case where the objective function includes employment targets, wage levels and subsidised pricing of strategic inputs to production is also consistent with this conclusion, depending upon how society values the welfare of the beneficiaries of these policies.

47 See Robert P. McComb and John H. Welch, ‘Public Enterprise and Privatization: The Importance of Differential Costs’, Economia Mexicana: Nueva Epoca, forthcoming.

48 A short formal discussion of this is available from the author upon request.

49 Òne should note how important the output market structure is in determining the performance of public enterprise in Brazil. Ironically, USIMINAS (the first company to be privatised) competed effectively in the world steel market as a public enterprise. Further, because of the competitive nature of this market, the price-book ratio was low compared to some other privatisations.

50 Garber, Peter M. and Weisbrod, Steven R., ‘Opening the Financial Services Market in Mexico’, mimeo, Brown University (10 1991)Google Scholar.

51 For good treatments, see Morris et al., ‘Latin America's Banking Systems’, and World Bank, World Development Report 1989.