In the early 1990s banks hailed Latin America as the new El Dorado. Having completed years of massive debt restructurings, they predicted that Latin America had become fertile terrain for the development of local capital markets.

But as has been the case for centuries, Latin America's financial markets tend to be manic-depressive. A decade ago the mood was manic; today it is depressive.

Once again bankers are finding that the region has failed to live up to their dreams. And once again Latin Americans are blaming foreign banks, particularly in the United States, for many of their problems.

Whoever is to blame, everyone agrees that Latin American debt and equity markets still account for only a miniscule share of world markets.

"Even Latin corporations find local capital markets too small for their needs," said Manuel Lasaga, president of StratInfo, a Miami-based Latin America economic consultant. "None of these markets is particularly large," he said.

At yearend 1998, Latin America's market capitalization stood at $390 billion, or barely 1.4% of the worldwide total.

Stability has also eluded the Latin markets. As usual, markets in countries such as Argentina, Brazil, and Mexico have been on a constant roller coaster. The market capitalization of the Argentina stock market hit a high of $59 billion at the end of 1997 before plunging 24%, to $45 billion, last year. Brazil's fell 37%, to $161 billion, and Mexico's 41%, to $91.8 billion.

Bankers say that the creation of private pension fund systems across Latin America has helped boost local demand for government securities and equities, but that other factors are working against significant growth in local markets.

"None of the currencies of emerging markets are really convertible, there are no longer-term instruments in these markets, and nobody is prepared to lend into these markets for more than five years," said Jan Kalff, chairman of the Amsterdam-based bank ABN Amro NV, which recently embarked on a major expansion in Brazil.

"The U.S. dollar is the currency of longer-term business and will remain so for a long time," he said.

Analysts at J.P. Morgan & Co., a major player in Latin American capital markets, have reached similar conclusions.

"Latin economies need to accumulate a longer history of stability before their domestic capital markets are able to absorb long-term instruments without the protection of dollars or inflation-linked indexes," said Luis Oganes, a Latin American strategist at J.P. Morgan.

Some Latin American analysts say foreign banks are largely responsible for destabilizing Latin America's financial markets, particularly its equity markets. Foreign banks swoop in, flooding the Latin markets with credit and pushing up equity values. Then they suddenly pull back, plunging local markets into chaos

"Foreigners have charged in and out of the region on four occasions during the 1990s, and this has produced wildly gyrating markets," said Christopher Ecclestone, a banking analyst at Buenos Aires Trust Co., an investment bank in Argentina. "If you didn't have foreigners with road-runner syndromes playing the markets, you wouldn't have these kinds of crashes."

Latin America, he advises, would probably be a lot better off "if you got the Wall Street banks -- doing their daily evaluations from ivory towers in New York -- out of the market."

The Brazilians have an old joke that sums up the story: "Latin America is the market of the future, and always will be."

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