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Central America Moves to Jump-Start Capital Markets

March 25, 1992

GUATEMALA CITY (AP) _ It took the end of a civil war and a dose of economic stability, but there’s a twitch of life again in Central America’s long-dormant capital markets.

El Salvador inaugurated a stock market Feb. 13, Guatemala will launch its second stock market by the end of March, and Honduras opened its first stock market in 1991. Only Nicaragua has no stock exchange.

″Now that a peace treaty has been signed (in El Salvador, on Feb. 13), companies that didn’t want to invest and expand their facilities before now see a brighter future and are receptive to the exchanges,″ says Gerardo Alvarez, general manager of the El Salvador Stock Exchange.

Investment in the region had been stymied in the late 1970s and 1980s because of a rash of civil wars and threatened insurgencies, especially in Nicaragua and El Salvador.

But the likelihood of stability has increased with the fall of the leftist Sandinista government in Nicaragua, the weakening of Cuba and fading threats of insurgencies.

Companies that participate in the region’s stock exchanges, or have expressed interest in the markets, include electric companies, privatized social security systems, and the Costa Rican airline, Lacsa.

The rekindled interest in stock markets is best illustrated in Costa Rica, where a 15-year-old exchange - Central America’s oldest and most developed - climbed 100 percent in 1991. It shot up another 10 percent in January.

Of the 75 companies listed on the exchange, called the Bolsa Nacional de Valores, only 15 have actually issued stock. The rest have issued bonds or other debt instruments.

But because of an increase in interest, exchange chairman Leonel Baruch said an exchange subsidiary soon plans to open the region’s first spot and futures market for local commodities. This new market, already approved by the government, has received applications from more than 75 brokerages.

″We’ve had applications and requests for information coming in from everywhere,″ Baruch said. ″This just shows me what a need there is for this new market.″

In Guatemala, the country’s Central Bank has controlled about 90 percent of trading since the nation’s first exchange opened in 1987. The Central Bank has not encouraged a placing of shares on the market, but rather the sale of bonds or promissory notes.

Jeffrey Erkelens, president of the country’s new stock market, said Guatemala needs the second exchange because ″the (first) stock market in Guatemala responds primarily to the interests of the Central Bank, and that’s why we decided that Guatemala needed a very dynamic and open market.″

The new exchange has registered eight brokerage houses that will work to convince companies to list their shares.

″Emerging capital markets have a lot of potential for growth,″ Erkelens said. ″I think even the multinationals would access markets for financing.″

However, some companies have indicated they will wait a spell before jumping into the new markets. Right now, these stock markets are better suited for local companies looking for capital to grow, said Guillermo Rojas, comptroller at Gillette de Centroamerica SA, a subsidiary of the Gillette Corp.

″If we decide not to issue shares, it’s not because we are not confident in the various stock markets here, but rather because of company policies,″ he said.

″It will be a few years before any of them are attractive to multinational companies.″

End Adv for PMs Wednesday, March 25

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