EMTA Central America & Caribbean Forum (NYC) - May 16
EMTA CENTRAL AMERICA & CARIBBEAN FORUM
Tuesday, May 16, 2017
Sponsored by
Global Depositary Notes (GDNs)
EMTA
360 Madison Avenue, 17th Floor
(on 45th St. between Madison & 5th Aves.)
3:30 p.m. Registration
4:00 p.m. Panel Discussion
Opportunities and Challenges for the Central American / Caribbean Region
Jorge Pastrana (Citi) – Moderator
Dan Gelfand (BlackRock)
Carl Ross (GMO LLC)
Benito Berber (Nomura)
Nathalie Marshik (Oppenheimer & Co.)
5:00 p.m.
Cocktail Reception
Additional Support Provided by Nomura, Oppenheimer & Co. and Tradeweb.
Registration fee for EMTA Members: US$75 / US$695 for non-members.
EMTA Revives Popular Central American & Caribbean Forum
A crowd of 100 market participants attended EMTA’s newly-revived Central American & Caribbean (CAC) Forum, held on Tuesday, May 16, 2017 in New York. Citibank Global Depositary Notes sponsored the event, with additional support from Nomura, Oppenheimer & Co. Inc, and Tradeweb. In light of its recent transit through default-ratings territory, El Salvador dominated much of the discussion, while panelists also debated the outlook for the Dominican Republic, Costa Rica and other CAC countries.
Citi’s Jorge Pastrana provided an overview of the CAC region, noting that most countries are net commodity importers, closely tied to the US in terms of remittances, exports and tourism. Pastrana polled speakers for their 2017 growth expectations, and the effects the new US administration on the region.
Although it was important to make distinctions between countries, generally CAC nations have benefited from US growth and lower oil pricing, noted Nathalie Marshik (Oppenheimer & Co, Inc.). Many face fiscal challenges, and the election calendar included votes in several Central American countries.
Carl Ross (GMO) delved further into the election outlook. “Political parties in this region aren’t that far apart, most are near the center…the dynamic is more about enjoying the spoils of being in power, such as access to government jobs, and that leads to poor fiscal outcomes,” he stated. The lack of sharp political differences led him to maintain a sanguine outlook (“I expect more positive news than negative”), while pointing out that El Salvador, the country with the widest ideological range, still had not adopted a dramatically new governing model under the FMLN.
Nomura’s Benito Berber confirmed that, during a recent trip to El Salvador, government officials had voiced commitments to pension reforms and fiscal adjustments that were not irreconcilable with opposition demands. Berber estimated that chances of reform passage were now marginally more than 50%.
Dan Gelfand (BlackRock) expressed a sanguine short-term view on El Salvador, while withholding judgment in the long term. “The recent ratings downgrades mean they can’t really repeat [the local pension fund default] episode; and long term is really dependent on an IMF deal; they will also need to figure out a way to carry out an internal devaluation because it is a dollarized economy,” he commented. Without an IMF deal, bond payments due in 2019 would be “up in the air.” Berber seconded Gelfand’s view, saying a “muddle through” path sans IMF support would become “very complicated by the end of 2018.”
In a slightly more positive tone, Ross argued that, with a large percentage of 2019 bonds owned by the local financial system, the percentage of “captive rollovers” should be considered. He added that, “I do think they can muddle through, but it would be much easier with an IMF agreement…and I don’t think it would be a Herculean effort to show some progress on the fiscal accounts.” Marshik concurred, suggesting that an IMF plan could be tailored to address fiscal issues in the first year and tackle pension funding thereafter.
Pastrana noted that the Dominican Republic had been among the region’s outperformers; and questioned how long strong growth rates could be maintained. Gelfand responded that, “they have done all the easy reforms, and it’s not clear what else they can do to draw foreign investment. I’m not concerned, but I expect growth to decelerate back towards the norm.” Berber and Marshik expressed doubts that fiscal reforms would be enacted, with Berber more optimistic on chances for electricity sector reform passage.
Speakers remained generally positive on the nation’s outlook. “The Dominican Republic is the most diversified economy in the Caribbean, and now they have gold too,” underscored Marshik. Ross added that remittance flows to the island were strong, the country offered a “strong tourism product and at a good price…with quality actually increasing,” and the infrastructure including roads and airports were “pretty good.”
Pastrana reminded attendees that fiscal reform has proven elusive in Costa Rica, and would probably be delayed by the upcoming election. Berber affirmed that there were many rigidities in the government budget, and any news will occur after the Presidential vote (a view seconded by Gelfand, who, in general, remained “reasonably optimistic).
Ross argued that Costa Rica’s loss of an investment grade rating should wake up officials from complacency in a country that is the regional home of many Fortune 500 countries, while stressing the need for a larger budget allocation on infrastructure. He meanwhile alluded to the country’s progress. “We all panicked when Intel said they were pulling out of Costa Rica, but instead now we have a whole new bunch of engineers there…and FDI is still coming in.” Gelfand called the country “a solid story, which is still growing rapidly and more so than tourism-dependent countries.” The unlikelihood of Congressional approval to issue more debt added technical support; “lots of demand chasing limited supply,” he added.
Smaller credits were also addressed. Gelfand labeled Trinidad & Tobago’s strategy for dealing with low oil prices as mostly “wishful thinking that the oil price will come back.” He cautioned that Barbados might be on a path to defaulting. Marshik suggested Suriname could offer value compared to other gold exporters, while warning that “the IMF program is gone and the economy is struggling.”