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Example research essay topic: Purchasing Power Parity Latin American Countries - 1,248 words

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1. What would be Ubt's country risk exposure if it where to establish itself in Chile The political risk of Chile is minimum, which makes a very attractive country to start the Latin America Operations of UBT, since the dictatorial military regime led by Augusto Pinochet ended in 1990. After this period, a free elected president was installed and the economy has stabilized from 1991 - 1997 and has helped the country to secure the country towards a democratic and representative government. Growth slowed in 1998 - 99, but recovered strongly in 2000. Chile has a well establish government that also reduces the political risk to enter the country. The government is divided in three branches: Executive, legislative, and judicial.

Executive power with president directly elected; successive reelection not allowed. Presidential candidates must win a majority or face a runoff. Under a constitutional reform approved by Congress in February 1994, the presidential term was reduced from eight to six years, the traditional term. In addition, Chile is a perfect country to establish a UBT division since it maintains relations with more than seventy countries. The restoration of democratic government in 1990, has reestablished political and economic ties with other Latin American countries, North America, Europe, and Asia. United States-Chilean relations have improved considerably since return to democracy and progress on issue of 1976 assassination in Washington of former Chilean ambassador to United States Orlando Letelier and United States citizen Ronnie Moffitt.

Although shunning multilateral regional integration schemes, entered into bilateral tariff-cutting accords with individual Latin American countries -- including Argentina, Bolivia, Colombia, and Mexico -- in early 1990 s, as well as negotiated framework trade agreement with United States in October 1990. Since joining the Mercosur Group in 1991, has played active role in promoting democracy within inter-American system. Indicators: GDP: purchasing power parity: $ 153. 1 billion (2000 estimate) GPD real growth rate: 5. 5 % (2000 estimate) GPD per capita: purchasing power parity: $ 10, 100 (2000 estimate) GDP composition by sector: Agriculture: 8 % Industry: 38 % Services: 54 % Population below poverty line: 22 % Household income or consumption by percentage share lowest 10 %: 1. 2 % Highest 10 %: 41. 3 Inflation rate (consumer prices): 4. 5 % Labor force: 5. 8 million Labor force by occupation: Agriculture: 14 % Industry: 27 % Services: 59 % Unemployment rate: 9 % Budget: Revenues: 16 billion Expenditures: $ 17 billion Major Industries: Cooper, foodstuffs, fish processing, iron and steel, wood products, transport equipment, cement, textiles. Industrial growth rate: 6 % Agriculture: wheat, corn, grapes, beans, sugar beets, potatoes, fruit, beef, poultry, wool, fish, timber. Exports: $ 18 billion (fob 2000) Export commodities: cooper, fish, paper, chemicals. Export partners: EU 27 % USA 16 % Japan 14 % Brazil 6 % Argentina 5 % Imports: $ 17 billion (fob 2000) Import commodities: consumer goods, chemicals, motor vehicles, fuels, electrical, machinery, food.

Import partners: US 24 % EU 23 % Argentina 11 % Brazil 6 % Japan 6 % Mexico 5 % Debt - external: $ 39 billion (2000) Economic aid recipient ODA, $ 40 million Currency: Chilean peso Exchange rate: 550. 94 Foreign Banks in Chile: ABN, AMRO Bank American Express Bank LTD Banco do Brazil Banco del Estado de Sao Paulo Banco de la Nation Argentina Banco Real Banco Sudameris Bank of America NT& SA Bank of Boston Bank of Tokyo Mitsubishi LTD BBVA Banco BHIP Chase Manhattan Bank NA Citibank NA HSCH Bank Republic National Bank of New York 2. What has been the effect of regulatory controls upon Chiles financial environment and how conductive is the environment for Ubt's entry? Financially, Chile seems to be a good candidate for inception of UBT in Latin America, since after 1990, the financial system has recovered and bank profits, deposits, and loans have expanded rapidly by about 15 % per year. In addition, the lack of additional regulations for international banks, which share the same regulations as local banks, is another important issue that makes Chile a very attractive country to begging our operations. The 1997 Banking Act deregulated borrowing and lending in the Chilean banking sector. Private banking institutions may now engage in some industry regulation activities formerly reserved for the Chilean government.

The Act also promotes cross-border transactions, transparency, and the application of objective criteria for new bank charters. In addition, it instituted a minimum of 8. 0 percent equity to risk weighted assets to comply with the international standard of the Basel Committee on Banking Supervision. The Central Bank of Chile and the Superintendency of Banks regulate the banking industry. The Central Bank of Chile is an institution independent of the government and works to maintain the country's currency stability and balance of payments. The Superintendency of Banks holds legal authority to charter banks and interprets and enforces laws as an independent government agency.

Chile's banking laws provide non-discriminatory treatment to protect domestic and foreign investors. The country's banking regulations ensure free competition for financial institutions and stable and efficient capital markets. Corporate mergers throughout this decade have created a competitive environment in the banking industry. Furthermore, Chile current financial status is excellent with money supply of 3, 905 billion pesos and total international reserves of US$ 15 billion. 3. If UBT were to have a presence in Chile, what would be its lending prospects and competition? The competition would be the 14 foreign banks previously mentioned, and the local banks that are attending Ubt's target market, which are the corporations.

The corporate segment that is preferred for prospects are the mining sector, considering that UBT has previous experience in that sector from operations in Philadelphia, and the size of that sector 201, 608. 8 (000 metric tons); and the manufacturing sector. 4. What other markets in Latin America would a UBT presence in Chile serve? In our opinion, UBT Chile should serve other Latin America markets such as Venezuela, and Peru. These countries contain markets of our interest such g, mining and oil drilling.

In Venezuela, the petroleum sector dominates the economy, accounting for roughly a third of GDP, around 80 % of export earnings, and more than half of government operating revenues. Venezuelan officials estimate that GDP grew by 3. 2 % in 2000. A strong rebound in international oil prices fueled the recovery from the steep recession in 1999. Furthermore, the Peruvian economy has become increasingly market-oriented, with major privatizations completed since 1990 in the mining, electricity, and telecommunications industries. Thanks to strong foreign investment and the cooperation between the FUJIMORI government and the IMF and World Bank, growth was strong in 1994 - 97 and inflation was brought under control. In our opinion, UBT Chile should serve other Latin America markets such as Venezuela, and Peru.

These countries contain markets of our interest such g, mining and oil drilling. In Venezuela, the petroleum sector dominates the economy, accounting for roughly a third of GDP, around 80 % of export earnings, and more than half of government operating revenues. Venezuelan officials estimate that GDP grew by 3. 2 % in 2000. A strong rebound in international oil prices fueled the recovery from the steep recession in 1999. Furthermore, the Peruvian economy has become increasingly market-oriented, with major privatizations completed since 1990 in the mining, electricity, and telecommunications industries. Thanks to strong foreign investment and the cooperation between the FUJIMORI government and the IMF and World Bank, growth was strong in 1994 - 97 and inflation was brought under control.


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