Latin America: The Road Ahead

As I finished my last interview of Hell Week on Friday, I ran from the Charles Hotel to Spangler Auditorium to make it to the opening of the 9th Latin American Business Conference, organized by HBS’ Club Ibero-Americano and Harvard’s David Rockefeller Center for Latin American Studies (DRCLAS). The two-day conference had three keynote speakers, five panel discussions, and an incredibly diverse set of professionals from all walks of life, including business, academia, nonprofits, and government. All in all, the conference was a huge success, not to mention the “Latin America: The PARTY Ahead” event at Pravda which finished it off. So here goes an overview of the parts I found most interesting…

Latin American Economic Outlook
The opening of the Latin American Business Conference was almost biblical as Ricardo Hausmann-KSG Professor of Economic Development & former Chief Economist of the Inter-American Development Bank-explained his theory about Latin America’s “original sin” (Hey, us Latinos do like partying but I don’t feel like such a sinner myself. Well, coming from Argentina, in the eyes of the almighty IMF maybe I should…).

Professor Hausmann’s theory proposed that the region’s historical problem has been the repeated sudden stops in capital inflows due to the Latin American countries’ impossibility to borrow abroad in their own currencies (original sin). This inability mainly comes from bad institutions, low credibility of monetary policy, fiscal irresponsibility, low contract protection, and the list goes on and on. In his framework, a vicious circle develops as international capital flows get spooked, which leads to a currency depreciation that makes income decline and debt become more costly, generating a fiscal and private solvency deterioration that spooks capital flows even more…

As Alejandro Puentes (NI) noted “…his presentation was focused on analyzing the roots of the problems Latin America is facing and proposing innovative solutions to solve the structural problems in the region. That’s something very difficult to find in any conference opening lecture. We can argue for hours about how feasible his ideas are, but I think we all agree that it was a great presentation…”

His proposed solution was to create an index based on a basket of currencies from emerging markets (EM) and having the World Bank, C-5 governments and other international financial institutions issue debt in this index so that emerging countries may later on swap their dollar-denominated debt for EM-denominated debt. In theory, the proposal sounds promising and creative, so let’s hope Professor Hausmann convinces the international financial community.

Ethics and Corruption
What? Corruption? In Latin America? No… OK, maybe; just maybe…
Two thumbs up for Luis Moreno Ocampo’s panel about ethics and corruption in Latin America. Not only did most of the audience relate to the examples he gave about widely known cases of corruption in Argentina and Peru, but most people also understood that it’s not just about government corruption but about a private sector fostering a corrupt system. Aligning profits and values and organizing legal business are an essential step to, maybe not eliminate but, at least, slow down corruption in Latin America. Good corporate governance, strict competitor controls and a more transparent public procurement system are necessary to rid Latin America from this problem. As future business leaders, it is our responsibility to take part in and, ideally, lead this change.

Reforming The State
To the surprise of many conference participants (including one of the speakers himself!) the second panel on Saturday morning focused on the challenges of State reform in Latin America, and what role business leaders should play in this change. Roberto Da¤ino (Peruvian Ambassador to the U.S. and former Prime Minister of Peru) argued that consensus building across all sectors of society (government, different political parties, civil society, and business)-much like the process he oversaw in his home country-is critical to define a long-term set of shared goals that can then serve to guide State reform and policymaking with greater continuity and consensus than has been seen in the past. Jeffrey Davidow (current Fellow at the Kennedy School and former U.S. Ambassador to Mexico) emphasized that strong, democratic institutions are critical to the creation of competent and accountable States.

Counting votes after an election is a “mechanical” aspect of democracy not too difficult to create, but having effective, transparent judicial systems, for example, takes much more effort and time. HBS Professor Bruce Scott moderated the panel and complemented Mr. Davidow’s observation by pointing out that property rights (a popular topic in recent debates) are not much use if a system of enforcement and protection of those rights is not in place. Though both panelists confessed to their preconceptions about MBAs by expressing their surprise in seeing people up on a Saturday morning to hear about State reform in Latin America, they found it a very positive sign of things to come in the region.

Financing Latin America in the 21st century
Nicolas Aguzin, head of Latin America Investment Banking at JP Morgan, started the panel by discussing the incredible M&A trends of the 90’s when the big-pocket multinationals went shopping to Latin America.

Following the Argentine crisis, the internet bubble and many other events that marked the beginning of the century, many of these global players stopped expanding in the region while some even retreated. Taking advantage of this opportunity, Latin American companies have begun to lead the way in M&A transactions, changing the well-known equation of global + local player to regional + regional player. Though this trend could bode positively for the creation of more Latin American global players such as Cemex, Bimbo, and AmBev, M&A activity in the region is unlikely to recover to prior levels if U.S. and European players remain cautious towards the region.

Successful Strategies in a Global Economy
Federico Bloch (HBS 79), CEO and co-owner of the airline Grupo TACA, was the perfect note on which to end the conference. Federico is a LEAD-material kind of entrepreneur: passionate, daring to follow his dreams and defying all odds by using intelligence, persistence, humility, and iron-strong principles all along the way. At 23 years of age, while finishing his 2nd year at HBS, Federico figured out a way (without having significant personal capital) to buy his own airline! After graduation, during his first day on the job as CEO and owner of his own airline, civil war broke out in El Salvador, a war that lasted 13 years! Despite these odds, Federico found a way, through persistence and resourcefulness, to not only keep his airline afloat, but to run it profitably from day 1 and grow it into the most efficient airline in the world today (yes, beating Southwest also). His simple, open, friendly nature had students gathering around him during the entire conference, and he retuned the interest right back, being the only speaker who sat through all the panels, came to all the student events, and even joined us in celebrating the conclusion of the conference at Saturday’s party at Pravda. On behalf of the Club Ibero-Americano, I think I can sincerely say thank you to Federico for sharing with us his example of leadership and commitment to the next generations.

Final Thoughts
Professor John H. Coatsworth, Director of the David Rockefeller Center for Latin American Studies, gave the closing thoughts to the conference.

A historian by training, Professor Coatsworth cast the ideas shared in the conference in a different light by grounding them in a greater historical time frame. Yes, it’s true Latin America has not been catching up as quickly to the developed world during the last 20 years, but over the last 50-100 years the progress mad
e in catching up seems much brighter. I think Coatsworth’s intention was certainly not to encourage a complacent consolation for the recent lack of performance, but rather to change the current pessimism by both nationals and foreigners about the region. Perhaps most notably, Professor Coatsowrth inspired hope that there is likely much than can, should, and will change if we all take a long-term positive approach towards Latin America.