A senior U.S. banker has warned that a new round of economic and financial reform will be necessary in Latin America.
William R. Rhodes, vice chairman of Citicorp and the architect of several multibillion dollar Latin debt restructurings in the late 1980s and early 1990s, said more reform is needed in Latin America to consolidate gains made in the last few years,
"The politics of economic reform promised tangible future benefits to large segments of Latin American society," Mr. Rhodes noted. "It must deliver soon or lose the support of the populace in many countries."
Speaking at the Americas Foundation in New York last week, Mr. Rhodes cited privatization, deregulation, tax reform, pension and social security reform, and independence of central banks as key areas of concern.
"Stage 2 may be just as hard as the first stage for some countries, but it is indispensable for establishing credibility and global economic integration," Mr. Rhodes said.
"A successful second-stage reform is also vital to instill investor confidence in Latin America and to sustain capital flows, particularly direct foreign investment."
Mr. Rhodes cited four areas of Latin America's banking systems that need to be strengthened:
Capital and reserves.
Risk management, including credit and market risk.
Financial supervision and enforcement by banking authorities.
Accessibility of financial data on a consistent and timely basis.
Mr. Rhodes also emphasized that reform of pension fund management and social security systems must continue, to "free up national treasuries and increase domestic savings."
"Countries with low levels of private savings tend to become more dependent on short-term external flows to finance their current account and fiscal deficits," Mr. Rhodes noted.
"The Mexican and Thai crises have taught us that a sudden outflow of local and foreign capital can lead to devaluation, higher interest rates, and recession-not to mention the danger of contagion."
He added that Latin America also needs to make further efforts to develop deeper and more liquid bond and equity markets, and improve financial supervision, accounting, regulatory, and disclosure policies.
He also noted that external capital flows to Latin America are expected to reach about $85 billion this year. According to Mr. Rhodes, Latin countries will have to improve their judicial systems to protect the growing number of foreign creditors and resolve conflicts.
Mr. Rhodes' remarks came as Citicorp has begun to beef up its presence in Latin America. Last month, the bank acquired Mexico's Banca Confia. There are also reports that Citicorp is planning to expand retail and corporate banking operations in Argentina.
Citicorp officials could not be reached for comment. However, Bloomberg News Services cited unnamed Citicorp executives as saying the bank plans to invest $60 million to add 35 branches in Argentina. Citicorp has 45 branches, around $4.2 billion of assets, and some $3 billion of local deposits.
Citicorp, which until recently was Argentina's sixth largest in terms of assets, has been knocked down a notch following BankBoston Corp.'s acquisition of Deutsche Bank AG's local subsidiary.