The role of Foreign banks in Emerging Countries. The case of Argentina, 1993-2000

The consensus used to be that, overall, emerging countries would benefit from the presence of foreign banks. The expansion and strengthening of international banks’ position during the 1990s has however heightened the debate on the merits of such presence, and the consensus has somehow weakened. Distinguishing between foreign banks’ presence and their dominance of the host market, the paper analyses the experience of Argentina in the period 1993-2000. To this end, the entire series of banks’ balance sheets is for the first time reconstructed. The results suggest that no major benefit derived from the increased share of funds intermediated by foreign banks, while all the banking system gained from a period of higher growth and monetary stability. Being part of Argentine public authorities’ strategy, the increasing dominance by foreign banks resulted as one of the factors leading to the impoverishment of 'bio-diversity' in Argentine banking. However, some of the problems that plagued the Argentine economy in the 1990s might be the result of the adoption of a complete financial opening rather than of the increasing dominance by foreign banks.