Latin America: Still Searching for Stability

Latin America: Still Searching for Stability

World Geographic Shares 133.8 Million Sq. Kilometers North America South America Europe Africa Asia Australia/ Oceania 18% 13% 7% 22% 33% 6%

World Population Shares 24: 6.4 Billion People North America South America Europe Africa Asia Australia/ Oceania 6% 8% 12% 13% 61%.5%

World GDP Shares 24: 4.7 Trillion Dollars North America South America Europe Africa Asia Australia/ Oceania 38% 4% 28% 2% 27% 1%

Proportion of Population under $1 a Day Percent 4 35 3 25 2 15 1 5 India Laos Peru Vietnam China Venezuela Philippines Pakistan Mexico Colombia Brazil Indonesia Chile Korea Malaysia Thailand

Max = 7 6. 5.5 5. Capital Access Index Gauging Entrepreneurial Access to Capital Chile Mexico Brazil Colombia Venezuela Argentina 4.5 4. 3.5 3. 2.5 2.

Latin America s Financial System World Total Percent of Total Accounted for by: China Japan United States Latin America Population 6.1 billion 2.8 2.1 4.5 6.9 GDP $31.1 trillion 3.7 13.6 32.7 5.5 Bank Assets $36.9 trillion 5.3 16.2 15.7 2. Equity Market Capitalization $27.8 trillion 1.9 8.1 49.6 2.1 Bonds Outstanding $31.6 trillion.7 16.7 54. 1.1

Capital Access Would Accelerate EMC Growth Mexico Russia Argentina Pakistan India Foregone GDP Growth % 2.63 2.5 1.97 1.7 1.66

Capital Access Would Add Billions to EMC Economies Mexico India Czech Republic Russia Philippines Foregone GDP US$ Billions 15.7 5.7 4.5 2.4 1.7

Opacity Score Card Max =1 7 6 Ecuador Colombia Mexico Argentina Venezuela 5 4 Brazil 3 Chile 2 1

Banking Stability MI Banking Crisis Likelihood, February 25 Scale 1-1 (1=Best) Argentina Brazil Colombia Mexico Venezuela Macroeconomics 5.6 5.38 4.82 4.58 4.12 Capital 4.8 4.56 5.2 5.36 5.5 Asset Quality 6.6 5.7 5.18 4.56 6.67 Mgmt. Quality 4.93 3.61 4.35 3.62 6.28 Solvency 7.1 4.93 4.9 4.5 4.68 Liquidity 4.75 2.96 4.4 3.98 3.59 Sensitivity 5.84 4.71 4.41 4.17 5.29 Total Stability 5.66 4.57 4.72 4.32 5.6

Banking Concentration Share of Total Bank Assets by Top Three Banks Percent 1 8 6 4 2 China Latin America Developed Asia Japan USA

Single vs. Multiple Bank Supervisory Authorities Single Supervisory Authorities Multiple Supervisory Authorities Argentina Bolivia Brazil Canada Chile Colombia Costa Rica Ecuador El Salvador Guatemala Guyana Honduras Mexico Nicaragua Paraguay Peru Suriname Trinidad and Tobago Uruguay Venezuela United States

Central Bank as a Supervisory Authority Central Bank Only Argentina Brazil Guyana Suriname Trinidad and Tobago Uruguay Central Bank Among Multiple Supervisors United States Central Bank Not a Supervisory Authority Bolivia Canada Chile Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Paraguay Peru Venezuela

Degree of Supervisory Independence 2 Countries Low Independence Medium Independence High Independence 1 2 3 Chile Colombia Costa Rica Mexico Argentina Brazil El Salvador Guatemala Suriname Uruguay Venezuela Bolivia Canada Ecuador Guyana Honduras Nicaragua Peru Trinidad and Tobago United States

Raising Gov. Debt and Sovereign Rating Japan Germany Argentina United States India Brazil United Kingdom Russia China Public Debt % of GDP 17 66 66 62 6 59 4 34 3 Sovereign Debt Rating AA AAA DDD AAA BB+ BB- AAA BBB- A-

Bond Market: Amount Outstanding US$ Trillions 25 2 199 2 24 15 1 5 N. America Europe Asia Middle East & Africa S. America

New Private Placements Funds Raised, 24 US$ billions 3 25 2 15 1 5 Latin America Asia U.S. Europe

Top Recipients of FDI Inflows US$ Billions 2 15 22 23 1 5 Mexico Brazil Chile Venezuela Colombia Ecuador

Regional Share of World Trade US$7.4 Trillions in 23 Latin America 5% Emerging Europe 7% Middle East 4% Africa 2% Asia 21% Developed Countries 61%

Remittances From U.S. to LAC US$ Millions: 23

Top Recipients of Remittances 21 US$ Billions 12 1 8 6 4 2 India Mexico Philippines Morocco Egypt Turkey Lebanon Bangladesh Jordan Dom. Rep. El Salvador Colombia Yemen Pakistan Brazil Ecuador Yugoslavia Thailand China Sri Lanka

Top Recipients of Remittances As a Percent of GDP, 21 Percent of GDP 4 3 2 1 Tonga Lesotho Jordan Albania Nicaragua Yemen Moldova Lebanon El Salvador Cape Verde Jamaica Yugoslavia Morocco Dom. Rep. Vanuatu Philippines Honduras Uganda Ecuador Sri Lanka

Percent 3 Remittance Receivers As Percent of Population 25 2 15 1 5 El Salvador Guatemala Mexico Honduras Ecuador

Barrels per day, Millions 1 Top Oil Producing Nations 23 8 6 4 2 Russia Iran China Ven. UAE Kuwait Algeria Libya S. Arabia USA Mex Norway Canada UK Nigeria Brazil

Top Oil Reserves: 23 Thousand Million Barrels 3 25 2 15 1 5 Iran UAE Ven. Libya USA Canada Qatar Brazil S. Arabia Iraq Kuwait Rus. Nigeria China Algeria Mex.

Regional Differences in Income Distribution % of Income 5 Latin America Developed Asia Developing Asia Western Europe 4 China India Pakistan Japan U.S. 3 2 1 Lowest 1% Highest 1%

Income Distribution vs. Income Level Gini Coeff. (Y-axis) vs. GDP per Capita (X-axis) 6 5 4 3 2 China Latin America Developed Asia India Developing Asia Pakistan Japan Western Europe USA 1 1, 2, 3, 4,

Percentage Share of Consumption: The Wealthiest 1% Percent 5 4 3 2 1 Brazil Colombia Chile Mexico Argentina Malaysia Venezuela Philippines Peru Hong Kong Thailand Cambodia India Singapore Laos USA China Vietnam Indonesia Pakistan Korea Japan

Scorecard of Economic Reforms Selected Latin American Countries Argentina Brazil Chile Colombia Mexico Peru Venezuela Public Finance 2 3 3 3 2 Tax/budget reform 2 2 3 1 1 1 Exchange rate 2 3 3 2 Financial market 1 3 2 2 2 Trade opening 1 1 3 2 3 2 FDI liberalization 1 1 3 2 2 1 Labor reform 1 2 1 1 Pension reform 1 3 1 2 1

Scorecard of Economic Reforms Selected Latin American Countries (continued) Argentina Brazil Chile Colombia Mexico Peru Venezuela Privatization 3 2 3 2 1 Deregulation 2 2 3 1 1 1 Property rights 1 3 1 1 1 Basic needs 3 1 Infrastructure 1 1 2 Good laws/courts 1 3 Good institutions 1 3 Total score 11/45 18/45 43/45 14/45 21/45 15/45 /45

World Bank Government Effectiveness 2.5 2. 1.5 1..5. -.5-1. -1.5 Singapore USA Hong Kong Chile Japan Taiwan Malaysia Korea Thailand China Mexico Philippines India Brazil Colombia Argentina Peru Pakistan Venezuela

UN Human Development Indicator Overall Ranking HDI 1. Latin America Developing Asia Developed Asia Western Europe.9.8.7.6.5.4 1975 198 1985 199 1995 21

2.5 Control of Corruption World Bank Index 2. 1.5 1..5. -.5-1. -1.5 Singapore USA Chile Hong Kong Japan Taiwan Malaysia Korea Brazil Thailand Mexico Peru India China Colombia Philippines Pakistan Argentina Venezuela

Share of Merchandise Export Percent of Exports 1 Manufactures Raw Materials Food Fuel Others 8 6 4 2 Latin America Developed Asia China India

Changes in Inequality over the Past Two Decades: GINI Coefficients Gini Coefficient 7 China India 6 Latin America Developed Asia 5 4 3 2 1 198-84 1985-89 199-94 1995-99

Control of Corruption vs. Income Level Corruption (Y-axis) vs. GDP per Capita (X-axis) 2 1.5 Japan USA 1.5 -.5-1 -1.5 Developed Asia India Latin America 5, 1, 15, 2, 25, 3, 35, 4, China Pakistan Developing Asia

ICRG Country Risk Composite Risk 1 9 Very Low Risk Low Risk Moderate Risk High Risk 8 7 6 5 Developed Asia Japan China India Latin America Developing Asia Pakistan

Risk Rating Higher = Riskier 7 Developed Asia Latin America 6 Western Europe 5 4 3 2 1 ICRG Regional Risk January 23 March 24 Composite Risk Political Risk Economic Risk Financial Risk

UN Human Development Indicator.9.72 China India Latin America.54.36.18. 1975 198 1985 199 1995 21

5 4 Economic Freedom Across Regions 1995-23 China India Pakistan Latin America Developed Asia 3 2 1 1995 1996 1997 1998 1999 2 21 22

Percent 2 15 Growth of GDP per Capita By Region: 198-22 Developing Asia Developed Asia Latin America China India 1 5-5 -1 198 1985 199 1995 2

Latin America Macroeconomic Overview The Region Mexico The Bahamas Cuba Belize Jamaica Haiti Guatemala Honduras El Salvador Nicaragua Costa Rica Panama Ecuador Colombia Dom. Rep. Venezuela Guyana Suriname French Guiana Population (mm) Brazil 176.9 Mexico 12.7 Colombia 44.5 Argentina 37. Peru 27.1 Venezuela 25.5 Chile 15.8 Ecuador 12.9 Peru Chile Brazil Bolivia Paraguay Argentina Uruguay

Latin America Macroeconomic Overview 21 continental economies with combined GDP of approximately US$2. trillion Economic Activity GDP 24A Per Capita GDP Growth (US$bn) (US$s) 25E Mexico 675 6,35 4.2 Brazil 61 2,912 4.3 Argentina 149 3,821 5.5 Venezuela 14 3,622 3.4 Colombia 93 1,814 4. Chile 94 6,181 5.5 Peru 69 2,433 5. Ecuador 31 2,217 3.6 Other 162 na na Total 1,978 na 4.2

Latin America Macroeconomic Overview 21 continental economies with combined GDP of approximately US$2. trillion GDP Global Ranking (US$bn) 14, 12, 1, 8, 6, 4, 2, 11,664 4,682 US Japan 2,73 2,124 2,1 1,978 1,678 1,649 983 668 582 Germany UK France LatAm Italy China Canada Korea Russia

Mexico Macroeconomic Overview Mexico is the largest economy in Latin America with a GDP of US$675bn labor force of 41.5mm people and a total population of 15mm investment grade: Baa1 / BBB US is largest trading partner under the North American Free Trade Agreement (NAFTA) Mexico is the second largest trading partner to the US GDP growth of 4.4% for 24, with oil prices and revitalized US manufacturing sector as the main drivers Positive outlook in 25 given continued recovery in the US abundant pool of labor, natural resources, and geographic proximity to US will continue to attract investment/business facing competition from other countries in low value-added manufactured products Policy emphasis on maintaining a tight fiscal deficit and controlling inflation Mexican inflation is at historically low levels-4% when the average for 1999-23 was 7.1% however, taxes and duties for state-owned oil company, Pemex, account for 33% of Mexico s fiscal revenues and underpin the Country s fiscal policy

Mexico Macroeconomic Overview Selected Macroeconomic Indicators 2 21 22 23 24F 25F GDP (US$ billion) 581.4 622.1 649.1 639.1 675.4 718.3 Real GDP Growth (%) 6.6 (.2).8 1.4 4.4 4.2 Exchange Rate (yr avg) 9.46 9.34 9.66 1.79 11.3 11.69 Inflation IPC (%) 9. 4.4 5.7 4. 5.2 3.8 Unemployment Yr End (%) 2.2 2.5 2.7 3.2 3.7 3.3 Fiscal Account Balance (%GDP) (1.1) (.7) (1.2) (.6) (.3). Total Public Debt (%of GDP) 4. 4.5 41. 43.2 39.4 39. Trade balance (US$ billion) (8.3) (9.6) (7.6) (5.8) (8.5) (16.4) Source: UBS Research

Brazil Macroeconomic Overview Brazil is the second largest economy in Latin America with a GDP of US$61 billion 15th largest economy in the world and 6th by population Brazil s GDP began to recover from the negative impact of power rationing when it suffered from concerns regarding the presidential election in 22 real GDP growth of 5.2% in 24 and 4.3% expected in 25 economic recovery driven by strong increase of exports and mild recovery of internal demand Brazil experienced a substantial improvement in its trade balance account after the 22 currency devaluation trade balance of US$33.7 billion in 24 improvement attributed to gain in export competitiveness and large import substitution response by domestic producers Inflation remains on target and exchange rates have finally stabilized since the devaluation inflation of 5.5% is forecasted for 25 exchange rate is expected to further strengthen to 2.75 to the US dollar in 25

Brazil Macroeconomic Overview Selected Macroeconomic Indicators 2 21 22 23 24 25F GDP (US$ billion) 61.9 59.6 459.3 56.7 6.5 711. Real GDP Growth (%) 4.4 1.3 1.9.5 5.2 4.3 Exchange Rate (yr avg) 1.83 2.35 2.93 3.7 2.93 2.75 Inflation IPC (%) 6. 7.7 12.5 9.3 7.6 5.5 Unemployment Avg (%) 7.1 6.4 11.7 12.3 11.5 na Fiscal Account Balance (%GDP) (3.6) (3.6) (4.6) (5.2) (2.7) (3.3) Total Public Debt (%of GDP) 48.8 52.6 55.5 57.2 51.8 5.4 Trade balance (US$ billion) (.7) 2.7 13.1 24.8 33.7 27.2 Source: UBS Research

Chile Macroeconomic Overview Chile is the most stable economy in Latin America long track record of consistent economic policy highest credit rating in Latin America (S&P: A-) Second largest GDP per capita in Latin America (US$6,181) 6% GDP growth in 24 Renewed economic strength assisted by historical-high copper prices and recovery of key trade partners Argentina, Brazil copper represents around one third of total exports Codelco sales represent over 8% of GDP Increased business opportunities arising from free-trade agreements expected to keep exports as the engine of growth in the mid-term enjoys free trade agreement with US, Mexico and Canada NAFTA Strong economic outlook expected in 25 and 26 with 5% GDP growth in both years however, increasing oil prices could moderate Chilean growth Currently negotiating free-trade agreements with China, which account for 1% of Chilean exports began talks with Japan towards economic partnership External sector strengthened by increase in copper output and its continued global demand Ongoing boom in fixed investment in machinery and equipment with falling unemployment expected to boost domestic demand

Chile Macroeconomic Overview Selected Macroeconomic Indicators 2 21 22 23 24F 25F GDP (US$ billion) 75.3 68.8 67.3 73.7 94.2 11.6 Real GDP Growth (%) 4.5 3.4 2.2 3.7 6.1 5.5 Exchange Rate (yr avg) 539 635 689 691 61 579 Inflation IPC (%) 4.5 2.6 2.8 1.1 2.4 2.5 Unemployment Yr End (%) 9.2 9.2 9. 8.5 8.8 8.3 Fiscal Account Balance (%GDP) (.6) (.5) (1.2) (.4) 2.2 2.2 Total Public Debt (%of GDP) 13.8 15.2 15.7 13.3 12.2 12. Trade balance (US$ billion) 2.1 1.8 2.3 3.5 9. 6.4 Source: UBS Research

Argentina Macroeconomic Overview In 23 and 24, Argentina s economy experienced a rebound, growing 8.8% and 7.6%, respectively country risk based on Boden s already at pre-crisis historical levels (452 bps) currency remains stable unemployment decreased to 14%, although 43% of households are living below the poverty line in Greater Buenos Aires (~3% pre-crisis) Outlook for the economy in 25 enhanced by the success of the debt restructuring on February 26, 25, the tender period for the Debt Exchange offer to restructure its defaulted sovereign debt expired announced preliminary final acceptance level of 76% 25 appears to be an attractive window of opportunity whereas economic outlook beyond 25 remains uncertain fiscal surplus dependent upon high commodity prices concerns over high level of sovereign debt limited foreign investment prior to Debt Exchange

Argentina Macroeconomic Overview Selected Macroeconomic Indicators 2 21 22 23 24F 25F GDP (US$ billion) 284.3 268.8 11.5 13. 148.9 169.9 Real GDP Growth (%) (.8) (4.4) (1.9) 8.8 7.6 5.5 Exchange Rate (yr avg) 1. 1. 3.35 2.92 2.94 2.93 Inflation IPC (%) (.7) (1.5) 41. 3.7 7. 8. Unemployment Yr End (%) 14.6 15.6 19.3 17.1 14. 13. Fiscal Account Balance (%GDP) (2.5) (3.3) (1.5).5 1.8 2. Total Public Debt (%of GDP) 48.2 53.7 135.2 13.5 121. 72. 1 Trade balance (US$ billion) 2.5 7.4 16.7 16.5 12.9 11.2 Source: UBS Research Note: 1 Preliminary estimate post debt restructuring

Argentina Macroeconomic Overview Historic Sovereign Risk 7, 6, Argentina Global 23 Spread 1 Argentina Global 217 Spread 2 Spread (bps) 5, 4, 3, 2, 1, 2.93 3,389 452 12/23/93 1/11/96 8/1/99 5/21/2 3/1/5 Spread Exchange Rate (A$/US$) Boden 213 Spread³ Notes: 1 Spread of Argentina debt maturing 12/3 over US Treasury 11/15/3 until 1/21/97 2 Spread of Argentina debt maturing 1/3/17 over US Treasury 5/15/17 from 1/28/97 to present 3 Spread of Boden 213 (Average Life of 4.7 years) over US Treasur y Bonds maturing 1/15/1

Strengthening Local Capital Markets International tranches are being used to diversify investor base and create greater price tension for relatively large offerings However, sizeable issues solely focused on local distribution are becoming more commonplace depth of capital markets driven by developed private pension funds and need for longterm instruments strong liquidity of domestic retail financial sector and increasing significance of onshore wealth management scarcity value of local securities different risk appetite/profile of local investors vis-à-vis international dedicated funds increasing focus of international emerging market funds on Eastern Europe and Asia Going forward, we believe this trend, which begun in Chile, could strengthen in Mexico and potentially develop in Brazil and other LatAm markets In the long term, the need for a more diversified investor base and diversified investment portfolios will eventually stabilize this trend

Strengthening Local Capital Markets As witnessed in Chile and Brazil, local institutional and retail investors have demonstrated a strong demand for equity and fixed income securities 15 Indexed Performance (US$) 14 13 12 11 1 9 8 131.2 125.5 124.8 117.1 18.2 11.3 7 6 4/14/4 7/14/4 1/14/4 1/13/5 4/15/5 Brazil Bovespa Mexico Bolsa Argentina Merval Chile IGPA MSCI LatAm S&P 5

25 Latin America and Caribbean Market Overview YTD Latin American issuance is 14.% higher than over the same period in 24 (US$14.7bn vs 12.9bn) January 5 started on a much slower pace compared to 4, but accelerated at the end of the month and in February Telecom companies have been the main drivers of corporates issues in 5 driven by Telmex and America Movil issues Total issuance in the US investment grade market is at US$147bn YTD, down 12.4% from last year s period (US$168bn) In the high yield market, YTD issuance stands at US$36.5bn, down 31% over the same period last year

25 Latin America and Caribbean Market Overview YTD Latin American issuance is 14.% higher than over the same period in 24 (US$14.7bn vs 12.9bn) Issuance by Country 25 YTD vs 24 YTD 6, 5,68 (US$ mm) 5, 4, 3, 4,24 4,336 4,161 2,925 2, 1, 1,35 4 1,15 5 65 45 576 4 46 253 Source: Mexico Brazil Venezuela Chile Colombia Peru Panama Jamaica Others 25 YTD 24 YTD

25 Latin America and Caribbean Market Overview YTD Latin American issuance is 14.% higher than over the same period in 24 (US$14.7bn vs 12.9bn) Issuance by Sector 25 YTD vs 24 YTD 9, 8, 7, 7,874 6,946 6, 5, 4, 3, 2, 1, 2,825 1,62 1,681 1,363 1,3 46 4 875 69 2 155 8 15 75 393 Sovereign Telecom Banks Oil & Gas Media Metals & Mining 25 YTD 24 YTD Food & Bev Construction Consumer Goods Utilities Industrial

25 Latin America and Caribbean Market Overview YTD Latin American issuance is 14.% higher than over the same period in 24 (US$14.7bn vs 12.9bn) Issuance by Currency 25 YTD vs 24 YTD 12, 6, 1, 5, 1,412 11,419 4, 3,27 3, 2, 1, 45 529 917 535 US$ Other EUR STG BRL 25 YTD 24 YTD

Development of Local Debt Capital Markets Due to a sharp decrease in interest rates and increased stability in recent years, companies have accessed domestic financing options on a greater scale The privatization of social security throughout Latin America has created new pension fund companies (i.e Afore in Mexico, AFPs in Chile), which have grown to be the largest institutional investors. The rise of this institutions, along with a growing mutual fund industry, has accounted for a large growth in domestically invested funds Afores in Mexico have approximately US$4 billion in assets under management, with mandatory contributions of approximately US$5mm every few months In Mexico for instance, commercial banks and mortgage banks are striving to gain market share or a dominant position in the country s fast-growing mortgage sector mortgages growing at 14.4% (3-6E)

Development of Local Debt Capital Markets Local Debt Issuance Mexico 14, 12, 12,193 1, CAGR: 2% (US$mm) 8, 6, 4, 4,13 7,528 2, 1,519 21 22 23 24

Corporate Restructuring Key Themes Inflection point in economy and markets rising interest rates in the US less certain perceptions of political risks booming equity capital markets, but for how long? Increased relevance of local players emergence of local companies wanting to build regional platforms and consolidate markets local knowledge as a competitive advantage particularly in a time of uncertain local risks Transition in family own companies Redefinition of Latin American Competitive Landscape Consolidation reactivated across the board with local players taking the lead Local conglomerates building regional platforms Regionalization effect expected to continue considerable discussion within some family led companies on the transformational transaction with some international players already or potentially moving into the game

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