Window of opportunity: Latin American debt starts 2003 with a bang but could burn out before the year is over. (Finance).

Latin America's leading economies, notably free-trade powerhouses Chile and Mexico, are busy lining up to borrow billions to cover bulging deficits as the global economy sags. And the international money crowd, still sore from plunging equity and corporate debt prices in developed markets, appears eager to help in the short term, kicking off 2003 looking for high-risk, high-return investments.

Mexico and Chile started the year strong selling US$2 billion and $1 billion in sovereign debt, respectively. Overall, Latin America issued $6.1 billion in debt during January, up from $4.1 billion in December.

But borrowing is still way down compared to the region's once-voracious hunger for capital. Private financial flows into Latin American economies are expected to increase to $35.5 billion in 2003, up from $25.5 billion in 2002, according to the Institute of International Finance (IIF). In 1999, almost $70 billion poured into the region, more than any other region in the world.

Experts say economic and political turmoil kept foreign investment in Latin America at bay in 2002. The region's debt issuance dropped 50% from the previous year according to London financial information provider Dealogic. At the start of 2003, as concerns about the new Brazilian government's fiscal discipline and Argentina's debt deal receded, investors bought back in.

"Since 2002 was volatile in a negative way, this is seen as a window of opportunity," says Jane Eddy, managing director for Latin America at Standard & Poor's. "It will continue if there is growth this year. and no major disruptions in Latin America."

Exotic bonds. A host of countries are now planning to take a crack at international markets for long-term loans. In January, Costa Rica began preparing to launch a $450 million sovereign bond--its largest offering ever--while Guatemala announced its plans to sell as much as $500 million. Both Panama and El Salvador alerted the market about offerings to be made later in the year. "[Central America] will do well because there is appetite for this kind of paper at the moment," says Marcelo Del Mar, an analyst at UBS Warburg, the financial services institution that along with JP Morgan helped launch the $2 billion Mexican offering.

The Caribbean has seen growing debt activity, too. The Dominican Republic issued $500 million in debt and Jamaica is reportedly considering an approximately $200-million offering in euros. With almost $13 billion in existing debt from 10 nations, Bear Stearns created in January an index to track Central American and Caribbean bond activity. The so-called "exotic" emerging market issues in Central America and the Caribbean are gaining support because investors believe they are isolated from the financial crises of Brazil and Argentina.

Peru is also preparing to launch a $1 billion offering as it seeks to reschedule existing debts before concerns about sustained growth and fiscal discipline resume in the region.

Investor confidence hasn't been completely restored. The trend in Latin America continues to be negative for most countries, according to a Global Sovereign Ratings report by U.S. rating agency Standard and Poor's. For the most part, only the region's strongest will come back home with a fat wallet Funds flowing into the region will run out before last year's volatile countries get their act together.

For many countries in Latin America, 2003 will be a period of political transition. Brazil, a major source of concern in 2002, is starting to look up as the administration of Luiz Inacio Lala da Silva has underlined the need for fiscal discipline. The country has also managed to stabilize the real, one of the conditions of a $30.7 billion loan from the International Monetary Fund. However, while the signs are positive, actual changes may not be seen for a while, says Eddy. As a whole the region is expected to grow 2.4% in 2003, led mostly by the region's favorites, Mexico and Chile, according to the IIF.

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