ECLAC Washington Office’s latest report Capital Flows to Latin America: Recent Developments highlights how external financial conditions have improved significantly for Latin America and the Caribbean since March 2009.

Improved market conditions have been reflected in declining debt spreads, increased debt issuance and in a pick up in equity flows to the region. Latin American bond spreads tightened 330 basis points from March to October 2009. Following a dry spell in the second half of 2008, Latin American bond issuers were active in 2009, particularly in September and October. Total international Latin American and Caribbean issuance from January to November 2009 was US$ 62 billion, with even sub-investment grade issuance showing signs of revival. Inflows into Latin American equities also picked up in 2009.

As many countries come out of the crisis with comfortable fiscal and public debt positions, tight banking regulation, and high levels of international reserves, equity prices have risen and credit spreads have narrowed, with the region becoming an attractive destination to portfolio investors in 2009. The region’s growth potential, falling interest rates and the strength of its banks are seen as positives when compared to other emerging market regions. The unprecedented accumulation of foreign reserves and the progress made in developing domestic debt markets, as well as the significant policy responses across the region, which in many cases have been preemptive, have contributed to increase the region’s resilience in face of the crisis. The increase in official support and funding from multilateral development institutions has offered an important cushion as well. There is a consensus that the worst has passed not only for the region but for all emerging markets. However, it is still unclear how soon and how strong the recovery will likely be.

Prospects for Latin America and the Caribbean will depend, on one hand, on how sustained world growth will be, but there is a lot of uncertainty as what shape this growth will take and if it will be sustainable in the long-run. One of the large unknowns is how well the world economy will fare once the huge fiscal and monetary stimulus supplied by governments is removed. On the other hand, prospects will also depend on domestic policies implemented by governments.

The Washington Office’s report on Capital Flows to Latin America, released twice a year, offers an assessment of the region’s access to external financing. It follows developments in bond markets, including the evolution of bond spreads and debt issuance, in equity markets and commercial bank lending to the region. The region’s creditworthiness, new debt issuance, liability management and terms of borrowing are monitored in the report, as well as movements in Latin American stock markets and in syndicated loan markets. Special emphasis is placed on investor perspectives on Latin American assets, as well as markets’ views and expectations.

For more information, see www.CEPAL.org/washington/