Japan adds Latin stake as American role eases
When Mexican Finance Minister Gustavo Petricioli travels to Tokyo this month, he hopes to persuade the Japanese to lend $1 billion to the already heavily indebted nation as part of a new international financing package. If the Japanese agree to Mexico's request, it would be another installment in a continuing lending and investment strategy the money-rich nation has made in Latin America. In fact, analysts say the Japanese sun is rising -- and getting brighter -- over Latin America.
``The Japanese have been aggressively investing in Latin America over the past four to five years, while US banks and investors have been pulling back somewhat,'' according to a report by Coopers & Lybrand.
Grady E. Means, director of Coopers & Lybrand's International Business and Productivity Division, says Latin America is one of five major markets in which the Japanese have taken an active interest.
``The Japanese have an idea that in the next 15 years, you have to have a significant share of the five major markets [in order to compete successfully]; so Latin America is important to them,'' says Mr. Means, who directed the Coopers & Lybrand study.
Japan has the money to make these investments and loans. Japan's banks, riding the wave of a huge trade surplus, are ballooning with available cash. Japan's official reserves hit a record $41.21 billion in July, brought on chiefly by investment returns and its trade surplus, the government said.
With the extra available cash, Japan's banks became the world's largest commercial lenders in 1985, with $650 billion in outstanding loans, beating out the United States by $50 billion.
In 1984, Japan shot nearly $13 billion into government loans and private investments in Latin America, more than double what it invested there in 1980, the Coopers & Lybrand report says. While the Japanese are pumping money into Latin America, the trend has been quite different for US investors.
Meanwhile, Latin Amaerican loan repayments to US banks outstrips new investments by these lenders, says Richard Feinberg, vice-president of the Overseas Development Council. Latin American nations returned more than $30 billion to foreign lenders -- primarily in the US -- in 1985, up from $25.8 billion in 1984.
The council is continuing to monitor Latin America's debt servicing situation, as well as the Japanese investment trends in that region.
Despite Japanese investments and loans to Latin America, those bankers and government officials are concerned about the region's financial stability. ``Latin America is still very bad'' economically, one banker says. ``The Japanese government . . . and private banks are reluctant to lend money to Latin American countries.''
A major portion of their money is still flowing into stronger markets, particularly the US, but Japanese lenders and investors know how to spot a bargain in a developing country. ``They are good about assessing these countries and their policies'' and investing appropriately, Means says.
Analysts say Latin American nations will eventually get over their economic hump and become an important world market. ``Latin America in the next 10 years will be a huge market,'' says Means, and he speculates that Brazil will be a ``colossal market'' for foreigners.
Japan is investing in markets like Brazil so it can be in place when those economies take off. ``Such aggressive international banking for the Japanese is targeted to . . . develop longer-term positions in what are anticipated to be increasingly attractive markets in such areas as Latin America,'' Coopers & Lybrand's report says.
Japanese bankers are willing to make a smaller profit on their loans. For example, Sumitomo Bank gets 30 cents on every $100 in loans, while Citibank has a 75-cent return and Morgan Guaranty earns $1.35.
US companies, however, should not be written off in Latin America, Means says. ``We'll be as effective as the Japanese in investing in joint ventures,'' Means predicts. US companies are starting to rethink their investment strategies -- particularly when it comes to Brazil -- and changes may be coming, he says.
US companies have typically looked at international investments in the ``near term,'' whereas Japanese firms tend to bein a country for a longer period of time, says Means.
US investment strategies and principles are expected to change over time, probably into a style more closely resembling that of the Japanese.