In an indication-that capital flows to Latin America may have peaked, Latin bond issues over the first nine months of 1994 totaled only $11.5 billion. down 33% compared with $17.2 billion during the same period of 1993.
Latin American bond issues are expected to total $16 billion for the full year, or 40% less than the $26.3 billion last year, according to West Merchant Bank Ltd., London.
These figures are particularly important to U.S. money center banks, which are major underwriters and distributors of Latin securities. In the first few years of the 1990s, large North American banks increased their tending to the region.
Net capital inflows to Latin America rose from $25 billion in 1990 to $43 billion in 1991, $64 billion in 1992, and $69 billion in 1993.
But rising interest rates in industrial countries and concern over political developments have dampened investment in 1994, while tepid market conditions have slowed the issue of Latin securities, according to a report by the Group of 30, a Washington, D.C.-based think tank.
The study, released earlier this month, notes that capital flows to the area appear to be improving more recently but warns that financial market and political volatility could again upset any improvement.
"Investors, both local and foreign, will be attracted to those countries that have implemented and continue to implement basic structural economic reforms," said William R. Rhodes. vice chairman of Citicorp and co-chairman of the Group of 30 committee responsible for the report.
According to recently released Federal Reserve Board data. U.S. banks have, over the 12 months ended March 31, boosted lending to Argentina to $8.6 billion, a 23% improvement over the same period the previous year. Lending to Mexico increased 11% to $18.7 billion, while loans to Brazil were up 8% to $12.5 billion. Volume to Chile was up 11% to $5.1 billion.
The report makes five recommendations for Latin American governments and their trading partners, aimed at supporting foreign and domestic capital flows:
* Central banks should be independent and pursue domestic price stability.
* Domestic financial sector reform should be undertaken, including the adoption of accounting and disclosure requirements, setting up pension, insurance, and mutual funds, and developing longer maturity bonds.
* Domestic savings and investments need to be raised from current low levels.
* Foreign exchange should be deregulated.
* Industrialized countries should lower remaining barriers to trade with Latin countries.