INTERNATIONAL TRADE THEORY

International Trade Theory

International Trade Theory

Introduction

The emerging markets of Latin American countries are collateralized bonds created as part of national debt restructuring .The assets of these markets are in form of Sovereign Bank Loans. The New restructuring issues are the exchange bonds and the local market debt instruments for sovereign, public sector and corporate borrowers Asset Risk exists because of the High potential returns tempered by inherent risks. The Evaluation of restructure history of defaulted sovereign loans indicates that there is Continued heavy indebtedness of many emerging nations of Latin America. There is a great Potential for political uncertainty.

Imperfect fundamental data and research information makes the decisions little more risky. With Non-standard and reduced disclosure requirements the Possible enforcement difficulties are likely to be faced. Because of the peculiar political situations in these countries there are only Limited remedies available in the event of any default. The Investors therefore need to consider portfolio diversification and investment selectivity Investment evaluation should be based on Credit fundamentals, Improving investment quality, Growth potential of reformed economies and Increased market liquidity. The Deregulation of key industries (transportation, Oil) and privatization of key industries (airline, telecom, banking) in Latin American countries dictate sustained economic growth in these countries. Some of the countries have introduced fiscal prudence, removal of price subsidies and reduction of trade barriers. After the introduction of tight fiscal and monetary policies with enhanced international competitiveness the stabilization of exchange rates has been a challenge for these countries. With manageable inflation and increased resources available to the private sector some decreasing foreign debt burden is visible. Reliable and viable investment alternatives are helping expanding consumer base.

Brazil The Emerging Market

Economic overview: With its large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil has South America's largest GDP by far and has the potential to become a major player in the world economy. Prior to the institution of a stabilization plan in mid-1994, stratospheric inflation rates had devastated the economy and discouraged foreign investment. Since then, tight monetary policy has apparently brought inflation under control - consumer prices increased by 23% in 1995 compared to more than 1,000% in 1994. At the same time, GDP growth slowed from 5.7% to 4.2% as credit was tightened and the steadily appreciating real encouraged imports while depressing export growth. The increased stability of the Brazilian economy allowed it to weather the fallout from the Mexican peso crisis relatively well, with foreign funds flowing in during the second half of 1995 to swell official foreign exchange reserves past the $50 billion mark. Stock market indices in Sao Paulo and Rio de Janeiro, however, ended 26% lower in 1995.

President CARDOSO remains committed to further reducing inflation in 1996 while boosting growth, but he faces key challenges. Servicing domestic debt has become dramatically more burdensome for both public and private sector entities because of very high real interest rates, which are contributing to growing budget deficits and a surge in ...