Economic Crisis and its Impact on Latin America

Inequality does not matter because I'm not envious. I care about poverty.

The Latin American continent is composed of countries that maintain economic behavior varied according to their governments, ideologies, where there are those who have achieved a solid consistency, capable of coping with the effects of the crisis, such as Brazil, Chile, Peru, but not, Venezuela, Ecuador, Bolivia, with socialist tendencies very marked and very serious internal conflicts.

About this impact, Luis Gomez tells us, that definitely consider the impact in Latin America is very diverse, since not all economies have the same structure. This makes the analysis difficult, but you can make some generic considerations could affect how the crisis in Latin America.

For commodities trading partners would not impact in the short term, since the rise of China and Asia generally maintain high levels in the price of these products, so that countries like Argentina, Venezuela, Ecuador and Chile may circumvent the crisis with more calm in this area. As the recipients of foreign direct investment (FDI) from Europe, since the euro's appreciation against the dollar makes exporting capital of this kind, although it should be noted that China and India are attracting the largest share of global FDI. Another positive factor is that U.S. rates have lower cost of dollar-denominated debt of Latin American countries will decrease, which can give a respite to the government budgets of countries with debt denominated in dollars. And countries with more orthodox economic policies, such as Chile, Brazil, Peru, Colombia or Mexico could enjoy a bonus of market confidence and better fund their capital markets.

But the negative issues are likely to predominate. On the trade issue, countries that export finished products to the U.S. will suffer lower sales volumes due to the low consumption of Americans, an example of this is the Mexican manufacturing industry

Indeed, as indicated by the UNCTAD, take into account that with Brazil at the head, which in 2007 attracted 34,600 million (23,690 million) of foreign investment and repeated his fifth place in the world rankings, Latin America has enjoyed of growing international confidence, which has led to foreign capital to shoot a 36% investment in the region during the past year, reaching 126,000 million dollars (86,250 million euros),

We know that Brazil has a chance to react better to the impacts of the crisis. However, the decline in foreign credit and foreign investment products directly affected the growth of private and government investments and expenditures, such as major infrastructure plans that had been scheduled, as the tax collection and is situated in a extremely high level and shows no signs of increase?.

In a paper on this reality that has been disclosed by economic experts, have aspects that can not be ignored that contains reports, as is the case presented bulletin Universia Knowledge Wharton, who notes that Anita Kon, professor Pontifical Catholic University of São Paulo, believes "that emerging economies will be badly affected by U.S. crisis, like the rest of the world, because the financial system is highly globalized and the crisis tends to spread throughout the system?.

However, Kon also notes that, "in Latin America, some countries with more stable macroeconomic conditions, such as Chile and Brazil, have a greater chance of dealing with these consequences, but will have to review their planning and public investment expenditures, and policies to support production, fight inflation and other social policies. In contrast, countries like Venezuela, Bolivia and Colombia, who are going through political and internal conflicts that are most prone to macroeconomic instability, will be most affected?. Finally, he says, "is the case of Mexico, which is always a positive difference in other Latin American countries to be directly related to the attention of U.S. demand, and therefore, this time suffer significant impacts?.

We add that the whole continent faces north with fear, trying to predict how much will be affected by the earthquake. Especially because, traditionally, when the U.S. sneezed, Latin America has a cold. However, on this occasion, Professor at the Pontifical Catholic University of Peru, David Tuesta Cardenas, believes it will be different. "Unlike previous crisis scenarios, this time to Latin America only give you a little cold, and pneumonia, as before, but depend on the media developed by each country for the past five years, he explains. For example, it is important to see how much tax savings generated during this period, what has been the public debt management, how have managed to diversify their exports. Countries such as Chile, Peru, Mexico and Colombia appear to have been handled better in this area, while Venezuela and Argentina may have done less?.

As pointed out the Kon, control of inflation will be a key factor to cope as best as possible the crisis. And some Latin American countries do not seem ready to fight, according to statements made by the director general of the International Monetary Fund (IMF), Dominique Strauss-Kahn, last July, when he warned that inflation was out of control in some countries emerging in the region. According to the FAO, Chile could end the year with a rate of 7.5%, Argentina has already reached the figure of 9.1% yoy, while Brazil stands at 5.6%, and Peru, at 5.4 %.

However, by contrast, some of these countries have other shields that can help balance a bit. This applies, for example, Peru, where Tuesta Cárdenas notes that "has managed to consolidate strong growth, averaging 6% over the past seven years, accompanied by prudent fiscal management that has led to savings in revenues generated largely by the high prices of minerals such as gold, copper, silver and zinc. This has been a tremendous help to have a fiscal rule, at the Act of Congress, in operation since 1998. They have also been fundamental advances in terms of trade liberalization since the 90's, which have continued to deepen in this decade and has allowed balance in a way, the trade balance, with gains on trade in manufacturing sectors such as textiles and agribusiness. Along these lines, keep an independent Central Bank has been instrumental?.

Another lifeguard Peru, according to Tuesta Cardenas, is "the fact that much of the current growth is anchored in domestic demand, which gives some respite in the short term?. In contrast, countries more dependent on international consumption, such as Mexico and Venezuela, may suffer financial crisis northern neighbor. Richard Obuchi, a professor at the Institute of Higher Administration Studies (IESA) in Caracas, said that "Venezuela's country risk, as occurred in other emerging economies rose sharply following the bankruptcy of Lehman Brothers. In Venezuela, in particular, the perception of risk is increased further by events that affected diplomatic relations between the U.S. and Venezuela during the week (such as Hugo Chavez's decision to expel the U.S. ambassador). However, the main risk for the Venezuelan economy is highly dependent on the country in the international oil market conditions. In this sense, if the events in the United States lead to an economic recession, the risk of weakening oil prices, by a decrease in energy demand, which would adversely affect the country's economic performance ?.

Definitely, as indicated Universia Knowledge Wharton, although each country has its own idiosyncrasies, in general, everyone will be seriously diminished their exports, and will be most exposed to them the most shaken by the crisis will be, as Prof. Tuesta Cardenas, who foresees "a slowdown in export sectors more tied to the U.S. market, such as textiles?. Similarly, his colleague Kon notes that "the export-oriented sectors such as steel, minerals and other inputs, will also reflect the decline in global demand?.

Source: Universia Knowledge Wharton