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IN URUGUAY, A WEIRD MONEY GAME INVITES U.S. BROKERS
american reporter ^ | 8/6/02 | mark scheinbaum

Posted on 08/07/2002 12:54:31 PM PDT by WoofDog123

IN URUGUAY, A WEIRD MONEY GAME INVITES U.S. BROKERS by Mark Scheinbaum American Reporter Correspondent August 7, 2002 LAKE WORTH, Fla., Aug. 7. 2002 -- I'm not an investment banker in Uruguay nor do I play one on television. But what if - just what if, I'm on to something here?

I literally shook my head upon awakening at my usual 4 a.m. the other morning to check international markets, to clear the cobwebs and my ear drums when I heard that U.S. Treasury Secretary Paul O'Neill was enroute to the capital of Uruguay with a $1.5 billion bailout check to save the South American country's banking industry.

Economic anarchy has ruled nearby Argentina for a year and there was no checkbook from Washington. Brazil's currency is in the tank. Venezuela's political and economic woes continue. So why the sudden help to Uruguay?

My suspicious mind flashed back to the U.S-arranged international loans to Mexico during the Clinton administration. Talk was, that as much as $20 billion was hastily arranged to prop up a sick peso, which threatened to infect "emerging markets." Similar currency problems in Thailand, Indonesia and other countries had lead to recessions and violence.

When the Mexican loans were paid off, in some cases ahead of schedule, the Clinton administration patted themselves on the back for a swift response to a hemispheric emergency. But how needed was the action?

Critics pointed out that Treasury Secretary Robert Rubin, former vice-chairman of Goldman Sachs, spearheaded the Mexican rescue. When first appointed to the No. 2 Treasury post, he had to wiggle out of confirmation- hearing questions about a juicy letter to his former Goldman Sachs clients which told them, well, his door was always open to help them.

It was reported at the time that one of the largest, if not the single largest underwriter of Mexican debt instruments was Goldman Sachs. A massive default of Mexican obligations would hurt Wall Street, but perhaps devastate Goldman Sachs.

Now comes a new administration and Uruguay.

One month ago I was checking plane reservations to Uruguay and Argentina. Fortunately, I never went.

The early thoughts of a trip south came when a number of individual and institutional clients felt that there were huge money management opportunities cropping up in Uruguay. Most of the newfound interest in the Latin America's home of European culture, urban guerillas, class conflict, and the international Jet Set was due to the misfortunes in Argentina.

The flights last a few short minutes from Buenos Aires and were heavily booked. The ferries from Argentina were also crowded and only took a few leisurely hours.

Wealthy and not-so-wealthy Argentines and the international community there were reportedly flocking to Uruguay, and were looking for U.S. brokers and U.S. guaranteed investment products and bond managers to bring some stability to their dwindling bankrolls.

Many Argentines (restricted to small withdrawals of an official peso, an unofficial devalued peso, and "scrip" issued in each geographical jurisdiction), were probably legally prohibited from making the transactions the travelers had in mind in Uruguayan banks. But there were still thousands of diplomats, resident aliens, and foreign businessmen in Argentine who certainly were not prohibited from scurrying to nearby Uruguay for "safety" and higher investment returns.

The investment banking conglomerate most mentioned to me was Citigroup. Going back to the old days of First National City Bank of New York and later just called "Citibank," the new Smith Barney-Travelers Insurance-Citibank consortium had long been a Latin American powerhouse.

Citibank gives a U.S. presence of security and stability to people stepping into a branch in Caracas or Cancun, and hires many of the top local investment and economic talent to build local "relationships."

It hasn't escaped me that the same Robert Rubin seems to be the power behind the throne at Citigroup. Some folks think he was also the catalyst for some of the corporate governance problems in the USA with his lobbying for an end to the Glass-Steagall Act. This law, born of the corruption of 1929, prevented banks from doing brokerage business, brokers from doing insurance business, etc. The law had to be repealed (with plenty of grease from lobbyists) to permit the Citigroup merger with Travelers - and changed it was.

Rumors about the exciting opportunities in Uruguay began to fade, and I started to wonder if the small country would emerge as a Switzerland of Latin America (as it once claimed), or a Lebanon of Latin America. At the peak of wide open prosperity (and corruption) in Beirut, banking, customs, and immigration rules seemed not to matter to anyone.

In a few weeks the global recession not only increased its hold on Uruguay, but the already wobbly banking system started to tumble. The technical reasons why this happened are not only beyond my areas of expertise, but probably beyond my comprehension.

What I would like to at least try to understand is this: what was the pressing, consuming need to particularly target the banks of Uruguay for personal and swift attention at this time? Could it somehow be due to the underlying investments in these banks themselves? Could it be some high-powered Wall Street connections? Could it be Citigroup?

Mark Scheinbaum is chief investment strategist for Kaplan & Co. Securities., BSE, NASD, SIPC www.kaplansecurities.com

Copyright 2002 Joe Shea The American Reporter. All Rights Reserved.


TOPICS: Business/Economy; Crime/Corruption; Foreign Affairs
KEYWORDS: 2002; argentina; bailout; bananarepublic; brazil; citibank; devaluation; jpm; latinamerica; latinamericalist; peso; pesosuruguayos; reais; real; southamerica; uruguay
Why did we need to bail them out for a few days until their IMF money shows up? I assume the benign interpretation is that the u.s. intervention alone will restore some confidence in their system, along with the temporary confiscation of 'long-term' deposits, whatever a long term deposit is. By the time these people get their peso moneda nacional deposits back they may not be worth their weight in paper. FWIW, uruguay has the most worthless low-denomination paper money I have personally used, the 5 peso note being worth about 20 cents now.
1 posted on 08/07/2002 12:54:32 PM PDT by WoofDog123
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To: WoofDog123
1,633,057.85 Turkish Lira = 1$;most devalued currency I have ever used.

or where I was born and raised, Costa Rica

339.42 colones= 1$

The relative worthlessness of Uruguay's money stems not from the amounts per dollar but how much of that exchange rate is artificial and born of fraud. In that respect I would say Uruguay is not that bad, esp for Latin America

2 posted on 08/07/2002 1:02:26 PM PDT by Lizard_King
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To: *Latin_America_List
Index Bump
3 posted on 08/07/2002 1:49:08 PM PDT by Free the USA
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To: WoofDog123
Why are we bailing out anyone? Let 'em alone, else they'll never learn how to fix their problems.
4 posted on 08/07/2002 1:52:10 PM PDT by A Ruckus of Dogs
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To: WoofDog123
I'm in the process of opening a software development office in Argentina - and must say that the experience has been positive thus far. The technical people I've got working with me there are as bright and capable as any I've worked with here in the US, the work ethic is great, and of course the costs are much lower.

Of course I'm going to have to learn to speak Spanish, but this old dog can still learn one or two new tricks.

5 posted on 08/07/2002 1:53:50 PM PDT by The Duke
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To: The Duke
And Argentina has a lot of very beautiful women too!
6 posted on 08/07/2002 1:59:49 PM PDT by wjcsux
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To: A Ruckus of Dogs
Why are we bailing out anyone? Let 'em alone, else they'll never learn how to fix their problems.

It would seem to make the most sense, however, as TR learned from Venezuela when their economy was failing (yes, a century ago -- some things never change) if they default than someone has to step in. We don't want it to be Europe.
As it is, they hate the U.S. because this is somehow the fault of the U.S.
What's needed is a sound economy based on open markets (won't happen, especially not with the trade restrictions we have on them) and an open political climate (that just won't happen.)
So we pitch in cash every 15-20 years, they call us American pigs and the Yankees swoop in and grab the best and the brightest for their World Series run.
7 posted on 08/07/2002 2:00:54 PM PDT by dyed_in_the_wool
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To: Lizard_King
i think you missed my meaning about paper money value; i was referring to the actually most worthless paper bill (not coin) in circulation in dollar terms, not the exchange rate itself; last time i was in CR (april) i didnt see anything lower than 500 colones in paper, it appears the 100's are all removed now. that is about a dollar fifty, far more than the 20 cents the 5peso urg. note is worth.

I did miss the last sucre days in ecuador by just a few days; some entrepreneureal folks apparently bought up the remaining UNC 10, 50, and 100 sucre notes in bank packs and resell them at the equivalent of 25000 sucres (1 dollar) in parks to tourists...

8 posted on 08/07/2002 3:19:25 PM PDT by WoofDog123
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