In Latin America, No Es 1994

Logic and recent experience say that when U.S. interest rates rise, Latin America falls under the cosh. That is, after all, what happened in mid-1994, when the markets recognized that the Federal Open Market Committee was engaged not in a mild snugging operation but an aggressive attack that would ultimately add 300 basis points to the fed funds target rate.

But though the Fed's current tightening mode has clearly become more than what investors initially expected -- with forecasters expecting at least another half-point to be tacked on by midyear -- most Latin American economies are poised not only to weather the tightening, but to continue to blossom. Bourses in the region may run into a bit of a rough patch, however.

"People are fully aware of tightening, even 50 basis points. The Fed will be reversing what is a usually liquid time, and turning the liquidity tap off may be enough to cause Latin America to stutter a bit," says a Latin American equities trader. ...