SANTIAGO, Chile Though it took Latin America a little bit of time to step up to the plate when it comes to foreign direct investment (FDI), over the last decade it has somehow come to be the one and only fountain of capital flows, while other sources, such as securitization, remain stagnant.

FDI, although controversial at times, has been an increasingly hot trend over the past few decades and seems to have become "the only game in town," according to IDB sources. At the same time, other forms of capital flows are sluggish.

By far, the most attractive FDI regions south of the border have typically been Brazil, with a 38% accumulation of total flows, followed by Argentina, Mexico and Chile. Panelists said human capital, quality of the infrastructure and trade links are among the economic factors that attract foreign investors. Additionally, government accountability and effectiveness, regulatory burdens, laws and commercial codes are among the institutional attractions for foreign investors.

Graciela L. Kaminsky, a professor at George Washington University, called for reform in the institutions and the strengthening of banks, and only then can capital accounts be accessed. Kaminsky also noted that the booms in capital inflows and trends toward financial liberalization came on the heels of the crisis in the 1990s.

Will history repeat?

It was not until recent years that Latin America began to take advantage of FDI flows. The first FDI "boom" came in the 1980s and according to the IDB, Latin America's FDI inflows remained stagnant at less than 2% at that time. A decade later, in 1993, the FDI boom officially hit south of the border - where flows have consistently been an estimated 30% since that time.

Perhaps the currently underdeveloped securitization market will follow suit. Talk among market participants at the IDB conference is that the idea of securitization is still in its embryonic stage of life and has not been fully internalized by all areas of the Latin American region.

However, while only 10 cross-border transactions occurred in Latin America last year and the same amount are predicted for this year, the market does in fact exist and more countries in the region are beginning to take notice of this source of funding.

"Mexican and Brazilian issues have been able to exist in the financial markets, as used to be the case in Argentina - I'm not so sure about what's going on now," Feller said.

"For Chilean companies, I would say that most of the largest companies have been quite successful in the last few years in going to the international capital markets and issuing bonds and debts," Feller said. However, Feller also noted that there has not been much activity in Chile, which is one of the two investment-grade rated countries. "Maybe the reason that there isn't much activity in issuing abroad for some Chilean companies is because we are small and in order to issue something in the U.S. you must issue at least $50 or $100 million and that's quite a bit for Chilean companies."

While that may be a significant part of the reason for a lack of activity in Chile and other able Latin American countries, there are many market participants that seem to argue that there are too many other problems that need to be tackled before the region kicks off with a booming securitization market.

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