2000 Annual Meeting
EMTA’s 2000 Annual Meeting was held on December 7, 2000 at Salomon Smith Barney’s offices in Tribeca, New York City. Over 350 market participants attended the event, which capped EMTA’s tenth anniversary year. Brazil Central Bank President Arminio Fraga and Argentina’s Secretary of Finance Daniel Marx gave the keynote addresses.
Fraga, who previously participated at EMTA’s 1996 and 1998 Annual Meetings as an Investor Panelist during his tenure at Soros Fund Management, discussed crisis prevention and lessons learned from the past. "My read on crises, having been on both ends of them in my career," noted Fraga, "is that the thing that gets us in the end is weak balance sheets, at the government level or at the private sector level." Fraga added that for those involved in Emerging Markets finance, "We have to look for what leads to the sort of situation we so often find—i.e., countries that are borrowing a lot of short term debt, or banking systems that are running huge mismatches, etc."
Weak macroeconomic regimes are a major part of the problem, according to Fraga, who then described Brazil’s key reform legislation and currency float. In addition, he stated that the country must improve its banking sector and corporate governance. He noted that, while not a panacea, better information flow helps. "I have been on your side demanding from governments better information, and I think, sitting where I sit now, it’s obvious that it is in our interest to respond to that, because we allow for good fundamental analysis," Fraga told the assembly.
Fraga also discussed private sector involvement in Emerging Markets financial crises. He commented that, although the debate originally polarized the official and private financial sectors, there appeared to be greater convergence towards flexible rules. Fraga opined that there appears to be a consensus that "those who do well will be supported…It’s a bit fuzzy, but probably the way it should be." In discussing exchange rate regimes, Fraga pointed out that he has come to accept the "polar view" that only pure floats or very strong pegs work.
Argentina Finance Secretary Marx immediately followed Fraga and spoke while the market speculated on the size of Argentina’s international rescue package; Marx apologized for not being able to discuss specifics of the deal, which was in fact unveiled eleven days later. Like Fraga, Marx also reiterated the importance of information being provided to the private sector, and spoke of the progress in information flow that Argentina has made in recent years.
Regarding Mercosur, Marx stated that, "We are making Mercosur work. It is becoming a really integrated market place." He added that Mercosur countries were unanimous in their desire to expand the trade grouping; and that Mercosur authorities should begin to negotiate lower trade barriers with the rest of the world.
Marx addressed the issue of low local confidence in the Argentine economy by suggesting that the De La Rua coalition government had been working its way along a learning curve, and that although "confusing signals" had caused a decline in local sentiment, more recently there had been increased "coherence and a consensus on strategic views" in the government.
Other topics discussed by Secretary Marx included reforms in the pension sector, domestic banking reform and Argentina’s Convertibility Law. He concluded by noting that, "Progress is never done in a straight line, but I am pretty confident that the bigger the challenge, the better…the results."
Sellside Panelists Generally Upbeat, Discuss Source of New Inflows
J.P. Morgan’s Jose Luis Daza, again leading EMTA’s Sellside Panel, started the discussion by commenting that 2000 was a "decent" year for the asset class, although he noted that much of the EMBI+’s returns in 2000 could be attributed to rebounds in Ecuador and Russia and U.S. interest rates. Looking forward to 2001, panelists were generally upbeat on investment prospects albeit using a variety of arguments.
Asked where new investment money would come from in the future, panelists emphasized different segments of the markets. Some panelists saw European investors as having a
potentially increased appetite for EM debt in 2001, while others concentrated on rising interest by crossover investors. The panel did agree, however, that participation by dedicated funds was likely to remain "essentially stagnant" in the near future. Joyce Chang (Chase Securities) noted that the generally improving credit ratings of EM debt issuers is attracting ‘high grade crossover investors’ while also pointing out that weaker countries will not benefit from additional flows. Arturo Porzecanski (ABN Amro) commented that, because of recent dealer consolidation, the "good old days of liquidity" are unlikely to return even in a bullish market.
When asked whether the Mexican success story could be attributed to good luck (including oil and geography) or strong policies, most analysts responded that Mexican performance was a result of some combination of both. Paulo Leme (Goldman Sachs) was vocal in his praise of the current Mexican economic team, noting that although passage of legislation may prove difficult, conditions are good for executing the "right policies."
Sellside Panelists were also largely bullish on Brazil, seeing the risks to Brazil as mostly being external, while also keeping an eye on the 2002 presidential elections.
Investors Call for Expanded Benchmarks, Increased Input in Restructurings
Investor panelists stated that continued work to expand benchmark indices was necessary. Mark Siegel (Babson Mass Mutual) referred to current benchmarks as "the product of the historical profligacy of developing market governments, which are no longer in power," while Abigail McKenna (MSDW Investment Management) noted that existing indices are an important factor in deterring new money from entering the markets.
Hari Hariharan (NWI Investment Management) commented that the state of the EM debt markets was good despite concerns about liquidity and tight new issue spreads, and that, with the increased role of local pension fund investors, the "quality of the investor base…is imperceptibly but definitely improving."
David Rolley (Loomis Sayles) stated that, if he were asked to provide his advice to Brazilian officials, his response would be, "Three words: more exports, please," adding that Brazil continues to run a trade deficit despite the effective devaluation of the Brazilian real in 1999.
Investor panelists also discussed their lack of input into recent debt restructurings and the formation of the Emerging Markets Creditors Association, as well as market concerns with the Argentine and Turkish economies.
Transcript of Remarks made by EMTA Executive Director Michael Chamberlin