The Impact of National Financial Systems in Latin America on the Development of Global Enterprises John C. Edmunds Lima, Peru May 2006

Overview This research provides an explanation for the distinctive pattern of enterprise development that has occurred in Latin American countries. The large enterprises have been less global, less diversified and arguably less competitive than the large enterprises that have arisen in other parts of the world.

Overview, 2 The explanation that this research puts forward is that the national financial systems in many Latin American countries were not designed or operated in ways that would provide enough financing to the local companies that might have become global players if they had received enough financing of the correct kinds at the times when they could have used it.

Overview, 3 The national financial systems include the institutions involved in issuing national currencies and controlling their supply; And the institutions involved in gathering and allocating the savings of the local population.

General Hypothesis or Assertion The national financial systems have had several attributes that diminish their capacity and predisposition for financing companies that might have become global-scope multinationals.

Six Attributes This research has indentified six attributes of Latin American national financial systems that each would be damaging to the development of globally competitive business enterprises. At this conference I present data indicating that several of these attributes are accurate characterizations of one or more national financial system.

Attributes The national financial systems have been: 1. too small to provide the amount of financing needed to support the growth of large, globally- integrated multinational firms; 2. often embroiled in crises of liquidity, so they could not provide steady access to capital to firms that might otherwise have been able to become global;

Attributes, Continued 3. weak in providing equity capital to firms, so the firms often had to rely on their own internal profits as their primary source of equity capital, and often had to look to the debt markets for financing, when equity financing would have been more appropriate to their needs; 4. too inclined to loan money to the national governments, more than was the custom in other parts of the world, instead of lending to private firms;

Attributes, 3 5. too focused on traditional forms of lending, i.e., financing exports and imports; and 6. designed in a way that gave preference to local, single-stage firms engaged in commodity production and export, instead of preferring to finance the growth of firms with far-flung, integrated operations.

Evidence