Call it a triple-edged sword... or a dog and pony show with cats... or a rain of fire...
Or you can just call it plain old nonsensical. That's what the past few days have been for Latin American markets. From the Mexican border to the tip of Cape Horn, Chile, markets have tumbled fiercely on the news that both Brazil and Argentina are injecting government into the private investment sector.
Brazil's government wants its state-controled banks to buy stakes in private financial institutions. The announcement, made on Wednesday, did not include any names, but there are several well-known institutions that could be affected by this:
Banco Bradesco (BBD:NYSE)
Banco Itau Holding Financeira (ITU:NYSE)
Unibanco (UBB:NYSE)
Things may be a little worse in Argentina. President Cristina Fernandez de Kirchner announced that the government will take over the $30 billion private pension fund.
She said that Argentina must protect its retirees, and that the country's constitution requires the president to provide pensions. Last year when the government allowed citizens to chose between privatized pensions and government pensions, only 20% of all people with pensions chose the government's plan.
In response, markets plummeted.
Brazil's stock market is down 8.9% today
Mexico's is down 5.04%
Argentina's stock market is down 8.02%
But the IMF still maintains that Latin America will weather this storm... that countries are expected to deal with this current crisis better than previous crises... and that the region will grow 3% next year, which is close the emerging market average forecast.
Everyone has questions, though... Are governments astute enough to handle the nationalization of major sectors? I'm not quite so sure. Just look at Bolivia and Venezuela, both controlled by heavily nationalistic leaders.
Venezuela has had three major blackouts this year. Some areas spent more than two weeks without power at a time. Bolivia continues to buy up local and international stakes in its natural gas pipeline infrastructure, but it's been shipping less than 50% of its contracted amount of natural gas to Argentina since September.
Problems like this led to a severe power crisis last summer, and forced Argentina to buy energy from Brazil.
So the question remains... Will government intervention result in protection from global markets, or will pensioner and investors alike be holding worthless papers and wondering where all their money went?
