WORLDWIDE FALL OF MARKET

Sources: AFP, BBC World, and El Nacional.

Web page: http://elnacional.com.do/article.aspx?id=24197

Date: August 9th, 2007.

World-wide fall of the markets does not affect Latin America

Photo:
A stockbroker appears next to the screen of the stock-market of Tokyo, where today the quotations of the security companies appear in loss. The Nikkei Index fell by second consecutive day. (AFP)


MADRID (By BBC World). - The recent volatility of the world-wide markets triggered to a great extent by the crisis of the real estate and credit sector of the United States has put on the debate table a financial instrument that as well as in that country as in the United Kingdom has been presented like a solution for the less well off.

One is the subprime mortgages, or credits of high risk that are granted to people with a doubtful credit record with a higher interest rate and more demanding clauses of cancellation than the conventional ones,

Sometimes the loan can go up to a 120% from the value of the house, and the income of the credit beneficiary put in serious doubts their capacity of fulfilment of the monthly payments.

A fall in the prices of houses in the United States and an increase in the unpaid credits have been a matter of concern in Wall Street and the economic authorities of that country.

Ten days ago, the Chairman of the Federal Reserve, Ben Bernanke, speaking before the Congress, noticed that the crisis in the market of these credits of second order could carry costs of up to US$100,000 millions.

Although the Latin American economies suffer of several evils, apparently are free from this problem, simply because it is an unknown financial instrument in its markets.

“The real estate market of Mexico is very small. It has just been developing during the last five or six years, but still with the traditional mortgages”, said to BBC World from Mexico DF, Luis Enrique Mercado, director of the specialized newspaper El Economista.

In Buenos Aires, Ricardo Delgado, head economist of the Consultora Ecolatina, agreed that in Argentina the “market of mortgage credit is very small”.

“The operations of purchase and sale of real estate in general are made to a great extent on cash. It does not have like in the developed countries with very advanced financial systems the possibility of buying a house with a 80% or a 90% of credit”, he explained.

For the Argentine economist, although the Latin American markets can offer financing of high risk for the purchase of automobiles or credit cards, it is almost impossible to see in the short term products similar to subprime ones.

The crisis in the real estate market of the United States of America was the trigger of recent stock-exchange volatility.

“In these countries that are very volatile, with very unstable economies in time, it is very difficult to recreate these instruments and to let them grow in a consistent way”, he says.

“While Argentina has a relation of loans to the private sector on its GIP of 10%, in Brazil it is of 30% and in Italy, to only put a case, it surpasses the 200%”, Delgado exemplifies.

He explains that in such case, when a financial system is only very great (by the scale and the minimization of the risk of these instruments) can be created “what in our slang it is called to deepen the relation of the saving and the investment”.


Freddy Miranda
Translated by Orlando Alcántara



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