23. Latin America Starts to Compete

Its businesses are in better shape than its balance of payments might suggest

When a string of Latin American countries defaulted on their payments to commercial banks in the debt crisis, their private companies were in as much of a mess as their public finances. Decades of protectionism and high inflation had bred companies that were adept at making money by cultivating political connections and by the profitable management of cash flow. But such firms had a poor record when it came to making goods that consumers might choose to buy. So when many Latin American governments subsequently opened their economies to foreign competition, it was not surprising that consumers flocked to buy imported goods that offered better quality for less money.

As gloom once again envelops Latin America, prompted by Mexico's devaluation last December, it is worth noting that the region has an overlooked asset it lacked in 1982: a substantially reformed corporate sector. Swollen by privatisations, corpo­rate Latin America is much closer than it once was to being able to compete with the world. In Argentina, the private sector is now bailing out the government, rather than the other way around. Even in Mexico, none of the blue-chip in­dustrial companies has yet defaulted on their dollar debts, though some may eventually do so.

The trade opening has forced many of Latin America's private firms to make painful changes. These have sometimes involved firing workers. But more often the strategy has been to scrap elderly machines and replace them with modern equipment. In most Latin American countries, productivity has risen sharply. A second competition-induced change has been equally important. Instead of making a wide range of products, inefficiently, as they did in the days of im­port-substitution, many firms have learned to specialise. By making a few product lines in much larger quantities, such companies are managing not only to compete with imports but also to develop new export markets. Encouragingly, such changes are now at last under way in Brazil's car industry, the region's largest single manufacturing complex.

Vocabulary:

public finance – государственные финансы, гос.бюджет

public debt – государственный долг

public spending – государственные расходы

public works – общественные работы

public opinion – общественное мнение

public services –коммунальные услуги

public library – публичная библиотека

public limited company – акционерная компания

bail out – оказать финансовую поддержку, спасти от банкротства; обычно такие функции берет на себя государство по отношению к компаниям или банкам страны

blue-chip companies - "голубая фишка", первоклассная компания (крупная солидная компания, известная своей надежностью, качеством товаров и услуг, стабильной прибылью

import substitution – замещение импорта (за счет внутреннего производства)

24. Bankless Banking

For bankers sweating to give their shareholders better returns, it seems nothing is any longer sacred. If the Citicorp/Travelers merger does not pro­vide sufficient evidence of this, J.P. Mor­gan might. Morgan, for decades Ameri­ca's bluest-chip lender, may soon get out of the lending business.

Morgan's profits have been disap­pointing of late. Its return on equity last year, 13.4%, was well below the 15.8% av­erage for America's big banks. Manage­ment thinks lending is much to blame—not only because margins are slim, but because regulators require Morgan to have capital equal to 8% of the loans it holds. The way out, it has told staff, is to help clients to borrow from other lend­ers rather than to be a lender itself. Goldman Sachs, an American invest­ment bank, has successfully broken into the credit business by arranging syndi­cated loans without taking any of the risk on to its own books. The analogy going around Morgan's Wall Street offices is of Goldman as the swan, and Morgan as the duckling trying to become a swan.

Morgan plans to start by cutting its own loan portfolio—$31 billion last year—in half, by selling the loans or hedging them with derivatives. All new loans will either be syndicated to other banks or sold in the secondary loan mar­kets. As current loans mature, Morgan's loan book will fade away. It will be cur­tains for the old commercial bank.

This strategy is by no means riskless. Morgan's main worry is that the plan might jeopardise its cherished relation­ships with clients. Even though the law prohibits "tying" other business, such as initial public offerings of shares, to trans­actions such as lending, Morgan has tried to exploit its existing commercial banking relationships in order to be­come a force in investment banking. Telling clients their risk is no longer good enough for Morgan's balance sheet is unlikely to please them. But sharehold­ers may like it.