Turmoil in Latin America and the Caribbean
In this note work from the end of 2001 to August 2002 is updated in an attempt to disentangle potential contagion and spillover effects of the Argentine crisis from other sources of co-movement or market volatility. We also examine the evidence on FDI flows, inquiring about potentially more lasting deterioration of capital flows to the Region. The recent increase in spreads across the region appears more correlated with the largely autonomous increase in spreads in Brazil (caused mostly by uncertainties arising from the electoral period, though also influenced by U.S. stock market turmoil and a fall in exports due to the collapse of the Argentine market) than with the protracted Argentine crisis. To some extent, it reflects some extent general market volatility, which was felt beyond the LAC region. Thus, we may expect that the present situation of high levels and volatility of spreads in the region will be maintained as long as the uncertainties arising from the Brazilian electoral process continue to impact the perception of Brazil country risk; and a further deterioration in this perception might have important consequences on market access and spreads across the region. Political events in other countries (electoral transitions in Bolivia, Colombia, and Argentina, social turmoil in Peru and Venezuela, increased violence in Colombia) as well as some forms of political contagion (Duhalde's statements on the failure of promarket policies in Mercosur; emerging anti-privatization stances in some countries, such as Peru) may have also contributed to spread increases and volatilities. Volatility and increases in risk perception in OECD markets, as a consequence of recent corporate accounting scandals, might also contribute to volatility and high spreads in the region. However, evidence of such effects is so far significant only for a few countries (notably Mexico and Brazil).
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2003-04
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| Subjects: | VOLATILITY, SPILLOVER EFFECTS, CONTAGION, EXCHANGE RATE, STOCK PRICES, MARKET VOLATILITY, CAPITAL MARKETS, TRADE, BONDS, OUTPUT, EQUITY, EXTERNAL DEBT, TRANSFERS IN KIND, EXPORTS, FINANCIAL MARKETS, EUROBOND MARKETS, FINANCIAL LINKAGES ACCOUNTING, AGGREGATE DEMAND, ASSET PRICES, BILATERAL TRADE, CAPITAL FLIGHT, CAPITAL FLOWS, CORRELATIONS, DEBT, DEPOSITS, DEVALUATION, ECONOMETRICS, ECONOMIC OUTLOOK, EMERGING MARKETS, EXCHANGE RATES, FINANCIAL CRISIS, FINANCIAL STATISTICS, FORECASTS, GDP, MARKET ACCESS, MARKET CONDITIONS, MARKET PROJECTIONS, OUTLIERS, PRICE INDICES, SPREAD, STOCK MARKETS, |
| Online Access: | http://documents.worldbank.org/curated/en/2003/04/3049969/turmoil-latin-america-caribbean https://hdl.handle.net/10986/15050 |
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| Summary: | In this note work from the end of 2001
to August 2002 is updated in an attempt to disentangle
potential contagion and spillover effects of the Argentine
crisis from other sources of co-movement or market
volatility. We also examine the evidence on FDI flows,
inquiring about potentially more lasting deterioration of
capital flows to the Region. The recent increase in spreads
across the region appears more correlated with the largely
autonomous increase in spreads in Brazil (caused mostly by
uncertainties arising from the electoral period, though also
influenced by U.S. stock market turmoil and a fall in
exports due to the collapse of the Argentine market) than
with the protracted Argentine crisis. To some extent, it
reflects some extent general market volatility, which was
felt beyond the LAC region. Thus, we may expect that the
present situation of high levels and volatility of spreads
in the region will be maintained as long as the
uncertainties arising from the Brazilian electoral process
continue to impact the perception of Brazil country risk;
and a further deterioration in this perception might have
important consequences on market access and spreads across
the region. Political events in other countries (electoral
transitions in Bolivia, Colombia, and Argentina, social
turmoil in Peru and Venezuela, increased violence in
Colombia) as well as some forms of political contagion
(Duhalde's statements on the failure of promarket
policies in Mercosur; emerging anti-privatization stances in
some countries, such as Peru) may have also contributed to
spread increases and volatilities. Volatility and increases
in risk perception in OECD markets, as a consequence of
recent corporate accounting scandals, might also contribute
to volatility and high spreads in the region. However,
evidence of such effects is so far significant only for a
few countries (notably Mexico and Brazil). |
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