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Latin America Investment News on Viva Tropical

Economic Winners and Losers of Latin America

Article Summary:

Latin America has experienced a period of rapid growth, but will end this year divided, as a detailed examination of the economy of the region reveals. Panama and Mexico are expected to once again exceed growth expectations while Brazil and Uruguay will continue with sluggish economies.

Photo Credit: Taringa

Original Article Text From Terra via Google Translate :

Winners and losers in the Economy in Latin America

After a period of rapid growth in Latin America will end the year divided. A detailed examination of the economy of the region reveals, as far as growth is concerned, a Latin American “two-speed”.

On average it is expected that the economies of the region to grow by 3.2% in 2012, down from 4.5 last year, according to IMF figures. Although the expansion remains “solid”.

But this figure masks differing situations like “recession” of Paraguay (-1.5% of GDP) and growth “Chinese” of Panama (8.5%).

“These numbers show that there are actually two stories to tell in Latin America: a country is growing above its potential, and another is that of those who do so below,” said Luis Oganes, a specialist in Latin America JP Morgan bank.

In the first group are the economies that will continue to grow rapidly (although they have slowed down a bit) as Peru, Chile, Colombia, Mexico and Bolivia, and Panama.

And on the other are mainly Mercosur countries-Paraguay, Brazil, Argentina and Uruguay, where the slowdown has been more drastic. “Brazil has finished pulling the average down as it accounts for 45% of nominal GDP in the region,” said Oganes.

The IMF was a year of “different perspectives and challenges” in each of the countries in the region. But how do you explain this difference?.

For Ignacio Munyo, the Center for the Study of Economic and Social Reality, in Uruguay, part of the explanation is linked to the panic that gripped global markets in the second half of 2011, following the worsening of the European crisis.

In a study for Brookings Institutions, Munyo and colleagues argue that there are three aspects that define countries that win or lose in economic terms in a scenario created by the crisis.

First, commodity exporters end up having a better balance due to the appreciation of those products. Secondly, those who are less dependent on “advanced economies” (U.S. and Europe), either commercially or for being the destination of migrant remittances, prosper more.

Finally, the countries most involved in international financial flows receive additional investment when the business opportunities in traditional economies decline.

“With the panic that gripped markets from mid-2011 investors fled emerging countries, focusing on safe assets such as U.S. Treasuries or gold. This changed the game and caused specific policies adopted by each country to encourage investment they supposed a differentiator “, defends Munyo.

The pressure would have been particularly strong in countries that were growing much like Brazil or Argentina. “In Argentina strengthened the internal confidence crisis, exacerbated by the unorthodox measures taken by the government,” said Munyo, referring to the controversial change control system adopted by Buenos Aires.

In Brazil, the market panic would have created additional difficulties at a time when the country exhausted their maximum production capacity and dealt with problems related to infrastructure.

Oganes argues that just then the South American giant implementaba measures to contain inflation, resulting in a sudden stop, which would have impact on the Mercosur countries.

Rising raw materials like oil or minerals partly explains the success of the region, analysts say.

Peru, for example, has a projected growth rate of 6% (according to the IMF), benefiting from prices, historically high in minerals, but expansion could be attributed to factors such as the strengthening of their domestic market or high levels private investment.

Venezuelan oil recovery have helped Venezuela to grow by 5.7% this year and to relieve the local government coffers. “It was driven by growth in public spending an election year,” said Neil Shearing of Capital Economics consultancy.
It seems clear that among analysts is a demonstrable difference between the causes of success and failure in Latin America.

Common Problems
Without ignoring external factors, Chilean economist Andres Solimano, International Center Globalization and Development, emphasizes the importance of the policies adopted by each country to encourage investment, expand the consumer market and help the competitiveness of local industry (with infrastructure development, improvements in the tax system, etc …)

In a study released this month by the World Bank aims at 50% growth of the middle class in the region, attributed to political progress in poverty reduction. This results also in more solid domestic markets.

But Solimano ensures that even countries experiencing rapid growth are far from having made the reforms that would guarantee long-term stability. “The GDP growth rates may be different, but there are common challenges. Foul more investment in education, measures to reduce income inequality and to increase the sophistication of production structures in the region.”

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Latin America Investment News on Viva Tropical