Latin Business Chronicle

BEFORE THE STORM: Presidents
Luiz Inacio Lula da Silva of Brazil,
Cristina Fernandez of Argentina
and Hugo Chavez of Venezuela in
Buenos Aires in August. (Photo:
Alfonso Ocando/Venezuelan Presidential Press)
Monday, October 06, 2008
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BY CHRONICLE STAFF
What a change a few weeks can make. A little over two
weeks ago - on September 19 - Brazil's president Luiz
Inacio Lula da Silva was asked about the potential impact
on his country - Latin America's largest - of the growing
U.S. crisis. "People ask me about the crisis, and I answer,
go ask Bush," Lula said. "It is his crisis, not mine."
By last week it had become Lula's problem as well. Even
Venezuelan president Hugo Chavez, who had also initially
dismissed the crisis as a U.S. problem, had to concede
that his country would be affected. "This is a hurricane,
or more than one hurricane, it's a hundred hurricanes,''
he said last week during a visit to the Brazilian city of
Manaus, where he was meeting with Lula and other leftist
leaders in Latin America.
Stock markets from Sao Paulo to Mexico City took a
hit. Bovespa, the Sao Paulo exchange, saw a weekly
decline of 12 percent, its worst result in six years,
while Mexico's Bolsa index had its biggest weekly decline
in eight years, according to Bloomberg. Meanwhile, the
MSCI index of Latin American shares had its biggest
weekly decline in 18 years.
"The increase in risk aversion is reducing the appetite for
cross-border portfolio and other capital flows into
emerging markets," says Alberto Ramos, the senior Latin
America economist at U.S. investment bank Goldman Sachs.
"The region is facing an increasingly adverse external
backdrop as heightened volatility in international financial markets and the ongoing
global credit crunch trickles down to Latin America. This will lead to a deceleration of
growth, a moderate deterioration of the current accounts, and possibly also weaker
exchange rates as the balance of payments picture worsens."
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So far, however, most experts are not changing their estimates for Latin America's
GDP growth this year, although they are seeing a slightly weaker one next year.
Citibank, for example, predicts that Latin America's economies will expand by 4.4
percent this year, the same as the International Monetary Fund predicted in April.
The fund will release its latest estimates and forecasts this week - on October 8. Citi
predicts that next year, Latin America will have a combined economic expansion of
3.5 percent, or only 0.1 percentage points less than the IMF predicted earlier this
year.
But experts like Ramos warn that Latin America will face a combination of challenges
in the days ahead as a result of the global crisis. "As the risks besetting the global
economy intensify and credit becomes more less abundant and more expensive both
households and corporates in Latin America will slash some planned spending in order
to increase precautionary savings," Ramos says.
That means postponing the purchase of big-ticket durable good items and
corporations delaying some investment projects, he points out. "FDI flows could also
suffer in the months ahead as corporate cash-flows in developed countries are
weakening," Ramos says. Case in point: Mexico last week shelved plans to privatize an
airport, citing the U.S. crisis, while Costa Rican President Oscar Arias warned the
country's growth rate may halve as investment drops, according to Bloomberg.
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And lower workers remittances due to the slowdown in the United States and Europe
affects Mexico and the Caribbean economies particularly hard, Ramos says.
Remittances to Mexico fell by 12.2 percent...
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Keywords: Argentina, Brazil, Citigroup, Costa Rica, Emerson, Fiat, Goldman Sachs,
Goodrich, Hilton, Inter-Continental, Mexico, Peru, Grupo Pomo, US Chamber of
Commerce, Venezuela



Latin Business Chronicle