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Argentina embraces risk management.

NEW NATIONS have seen greater political and economic turbulence over the past 10 years than Argentina. Its defeat in the Falkland Islands War a decade ago sped the demise of its military dictatorship in 1983 and paved the way for a democratically elected government. Argentine democracy has survived, despite an attempted coup and an 84 percent inflation rate in 1991 that ranks among the worst in the Western Hemisphere.

However, the nation is poised for an economic turnaround driven by the privatization and deregulation of state-owned industries. Economic reform policies were introduced in 1989, resulting in the reduction of government control over the economy. In addition, experts believe increasing awareness of risk management within the evolving business sector could not have come at a better time.

Long estranged from the international community because of restrictions on foreign investments, Argentina is relatively new to the workings of a free market and a free society. Gordon Cloney, president of the International insurance Council in Washington, D.C., believes the current state of affairs presents the perfect environment for risk management to flourish. He notes the local life insurance market "had just been devastated by years of economic mismanagement in the country" while property casualty companies are in similar straits. "The principles of risk management are more important when you don't have an adequate insurance market than when you do," he says. "Within Argentine companies, the ability to manage their risk exposures is of critical importance."

Political risks that could upset the economy are also minimal in Argentina, says Samuel Eaton, senior adviser for Political Risk Services in Syracuse, New York, and a former U.S. assistant secretary of state for inter-American affairs. While Mr. Eaton notes that an attempted coup does not seem likely because the Argentine military has been discredited for disastrous domestic policies, he adds the new economic policies could bring about unaccustomed prospects of higher unemployment rates and reduced living standards for most Argentines. Unemployment has already hit government-jobs-about 150,000 state workers were either dismissed, asked to retire or sought jobs elsewhere, since Argentina's President Carlos Menem introduced economic reforms in 1989. This constituted 15 percent of the government payroll and the goal is for a 50 percent cut.

Association Leadership

LEADING THE risk management campaign is the Association Argentina de Administradores de Riesgos (ADARA), the nation's counterpart to RIMS. In an interview with Risk Management, ADARA President Jorge Luzzi explains that the organization is attempting to increase the profession's awareness level and practice in Argentina and throughout Latin America.

ADARA was created in 1987 after a single meeting of a group of risk managers. "When ADARA started its work, risk management was considered a very good idea for the United States and Europe, but a utopia for Latin America," recalls Mr. Luzzi, who is also risk manager for the SpanishAmerican division of Pirelli, a multinational tire and cable producer. In Argentina, the general idea was that one insurance chief was enough, even if he was the worst financial officer who only had a few hours for contracting insurance policies."

Yet the inflation rates of the past few years, which Mr. Luzzi notes jumped to a "crazy level of 24 percent in one day," and the recent bankruptcy of the state-owned reinsurance monopoly forced the business community to consider a new strategy. "Risk management began to be considered as a new tool in the face of adversity," he says. "Today, the big industrial companies are implementing the discipline of risk management and the small and medium-sized companies are trying, at least, to know what is going on."

By trade association standards, ADARA has developed quickly. Its members represent some 70 private and state-owned corporations, and it hosts monthly conferences that also attract non-member risk managers and insurance industry officers interested in learning risk management techniques, many of which are relatively new to Argentine business.

Transcripts and summaries of the monthly conferences are prepared free of charge for local colleges and universities. Indeed, one of Mr. Luzzi's goals is to introduce college-level risk management courses. "We'd like to introduce the basic principles of risk administration to the young people," he says. Currently, Argentine students who wish to study these courses must go abroad. ADARA is currently presenting risk management courses to high school students.

New Playing Field

THE RETURN TO normal inflationary rates and the shift towards privatization is creating new challenges for Argentina's risk managers. Mr. Luzzi notes that the bankrupt state-owned reinsurer is being replaced with privately owned firms and the birth of an alternative market, thus providing hitherto unknown opportunities. Yet the Argentine campaign to end nationalization and attract foreign investment could be damaged, he adds, if the local industries, still feeling the effects of the period of acute inflation, are unable to obtain proper coverage following a major claim.

Argentina does not have an alternative market and Mr. Luzzi is interested in learning more about how it operates. "We need to think of alternative ways of transference which are different from the traditional insurance policy," he says, "It could be very interesting to analyze the non-traditional ways of transference that were developed during the past few years." Argentina's risk managers are not alone in this situation. Mr. Luzzi points to the return of democracy and the re-emergence of free market economies throughout Latin America. "Mexico, Chile, Argentina, Peru and Venezuela are trying to go ahead with similar plans for the transference of government companies to the private market and free competition, which creates similar new risks," he says.

Varied Approaches

AS A RESULT, ADARA is planning a Latin American risk management conference to cover issues that, in Mr. Luzzi's opinion, are unique to Latin American corporations. He stressed that while risk managers throughout the world share similar objectives, there are a variety of approaches and philosophies surrounding pertinent issues which are unique to Latin America. ADARA is currently working with its sister associations in Mexico and Venezuela as well as the risk management association for Brazil, whose Portuguese language separates it from the rest of Latin America but whose political and economic concerns are similar. Mr. Luzzi believes important input could come from the risk management association of Spain because that nation still maintains strong links with its former colonial territories.

ADARA is eager to maintain steady ties with other members of the International Federation of Risk and Insurance Management Associations and has participated in several international risk management conferences, although a major obstacle facing both the organization and all Latin American risk managers is the language barrier. "Not all of the risk managers in our region speak English and there is not a lot of written material about risk management in Spanish," Mr. Luzzi says.

Closer to home, the association's efforts have not gone unnoticed. An example of its growing importance came last November during a national economic conference when Mr. Luzzi, in his capacity as ADARA's president, shared the speaker's forum with the president of the Central Bank of Argentina and the president of the national commission of the stock exchange. However, Mr. Luzzi is not ready to rest on his laurels.

"ADARA is not yet at the same level of recognition as other associations, such as the Insurance Companies Association," he says. "ADARA is very young and we need to work hard."

IN AFRICA there is other news affecting the risk manager's global business affairs. Cape Verde, an island republic off western Africa, has established the Commerce and Banking Agency of Cape Verde to coordinate the registration of international insurance and reinsurance companies, banks and other corporations seeking a tax-free domicile. The government has appointed U.S. Star International Inc. of Irving, Texas, as its American forwarding agent.

In England, the Bermuda-based Through Transport Mutual Insurance Association Ltd. has launched a new British subsidiary. The London-based Through Transport Mutual Insurance Association of Europe Ltd. was opened to take advantage of the European Community's Second NonLife Insurance Directive, which allows the company to insure European operators from countries both inside and outside the European Community.

European and Japanese insurance companies will aggressively challenge American firms for their market share at home in light of federal regulatory changes, according to The Futures Group, an international management consulting and research firm based in Glastonbury, Connecticut.
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Title Annotation:Asociacion Argentina de Administradores de Riesgos
Author:Hall, Phil
Publication:Risk Management
Date:Mar 1, 1992
Previous Article:Why be a risk manager?
Next Article:The risk manager's salary survey.

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