|
 Latin American economies are facing an awkward combination of slowing activity, more difficult external conditions, and still-high inflation. After four years of strong output growth, the pace eased in most economies of the region during the first half of 2008, largely because of moderating exports, according to the IMF World Economic Outlook.
Domestic demand has remained quite robust so far this year, sustained by terms of trade gains for commodity exporters, but is expected to be dampened as the global economy slows and by the shift toward monetary policy tightening to contain inflation. Countries in the region have also been facing more difficult external conditions in recent months.
Latin America has been increasingly affected by turbulent conditions in mature financial markets, with equity prices falling sharply, spreads widening markedly, access to dollar funding tightening appreciably, and exchange rates coming under pressure, especially in commodity-exporting countries facing lower export prices.
Overall, GDP growth is projected to come down from 5½ percent in 2007 to 4½ percent in 2008 and 3¼ percent in 2009. The somewhat sharper deceleration in 2009 than envisaged in the July 2008 World Economic Outlook Update reflects the weaker global outlook, softer commodity prices, and more difficult external financial conditions.
Growth in Brazil would come down below trend, and activity would remain sluggish in Mexico as exports and remittances are dampened by the US slowdown. Growth in Central America and the Caribbean is also expected to ease, reflecting the impact of slow US growth on remittances, trade, and tourism, as well as high fuel costs.
Some numbers for country growth in the region, 2008 and 09, follow: Argentina, 6.5% and 3.6%; Brazil, 5.2% and 3.5%; Chile, 4.5% and 3.8%; Colombia, 4 and 3.5%; Ecuador, 3 and 3%; Mexico, 2.1% and 1.8%; Peru, 9.2% and 7%; Uruguay, 6.5% and 5.5% and Venezuela, 6% and 2%.
Headline inflation for the region as a whole rose to 8% in August, the highest rate in five years, although it is expected to moderate in the latter part of 2008 and 2009, helped by softening international commodity prices, tighter monetary policies, and slowing demand growth.
Still, inflation will remain at double-digit levels in a number of countries in the region, including Bolivia, Paraguay, the República Bolivariana de Venezuela, and several Central American countries, and analysts believe that actual inflation in Argentina is considerably higher than the official rate of 9% in August.
Although nominal wage growth has remained under control in most countries, high inflation expectations are feeding into wage negotiations in countries such as Argentina and the República Bolivariana de Venezuela, where capacity constraints are tight.
In countries with inflation-targeting central banks?Brazil, Chile, Colombia, Mexico, and Peru?inflation has also risen, in some cases above target ranges, but increases have generally been more contained than elsewhere in the region, and there are signs of stabilizing or even declining inflation expectations for some countries.
In response, central banks have raised policy interest rates, most actively in the inflation-targeting countries, where exchange rate appreciation has also helped contain inflation pressures. In Brazil, monetary policy tightening has been supported by an increase in the primary fiscal surplus target for 2008 by ½ percentage point of GDP.
However, fiscal policy has not in general been restrictive across the region, in part because of the budgetary impact of delayed pass-through of international oil price increases and increased explicit subsidies.
Although inflation should now gradually recede, monetary tightening is still warranted in some countries where real interest rates have become significantly negative and there is a sense that policy credibility is being eroded.
Central banks with inflation-targeting regimes have earned some limited scope to tolerate temporary deviations of headline inflation from objectives, but, depending on evolving risks to activity, some may still need to raise rates further.
At the same time, tighter control over the growth of government spending would help restrain domestic demand growth and reduce exposure to adverse shifts in market sentiment.
External positions are generally robust, although the turbulence in the global economy may erode the cushions that have been built up over the past few years. The region's current account balance is expected to move to deficit in 2008 and 2009, after being in surplus since 2003, but the deficit will remain quite low.
Moreover, reserve levels are high, and flexible exchange rates provide room to maneuver in a number of countries. Overall, public sector balance sheet vulnerabilities have been reduced and credit ratings raised. Brazil and Peru both achieved "investment grade" ratings in recent months.
However, conditions for US dollar funding have tightened in several countries over the past month, which together with a sustained drop in commodity prices could stretch macroeconomic policy frameworks.
Risks to this outlook are to the downside, largely related to external developments. A deeper downturn in global growth could trigger a sharp drop in commodity prices, while external financing conditions facing Latin America could continue to tighten.
Such a scenario would slow growth in the region even more, and although inflation would moderate considerably, external positions could come under serious stress. In this event, policymakers would need to stand ready to adapt policies as needed to preserve macroeconomic stability and the prospects for long-term growth.
Those few countries with very strong fiscal positions may have some scope for a countercyclical fiscal response. Flexible exchange rate management would provide resilience in the face of potentially volatile foreign exchange flows.
Mercopress
 |
Subscribe to this comment's feed
Brazil received a huge boost in its international image with its selection as the host of the 2016 Olympics, but it was really just the cherry on top of the overall recognition of the country's ascension to the ranks of one of the world's most important countries. Now, as it finally takes its place on the world scene, there has been a great deal of concern about what kind of image Brazil hopes to project, now that the world is really paying attention. 
The only good thing to say about the visit to Brazil of Iran's president, Mahmoud Ahmadinejad, on Monday November 23, is that it was mercifully short and lasted less than 24 hours. Ahmadinejad had his picture taken being hugged by president Luiz Inácio Lula da Silva who gave him a warm welcome and said Iran had every right to develop nuclear energy for peaceful purposes. 
The small, coastal town of Condé is located just a twenty minute's drive from João Pessoa, the capital of Paraíba. The Northeast of Brazil has historically been a place of encounter and mixing between peoples. For millenia groups of indigenous people fished, farmed, migrated and sometimes fought along this large, fertile area. 
The Brazilian diplo-MÁ-cia (bad diplomacy) carries on its accelerated course towards the non-acknowledgment of human rights, although sometimes it takes pleasure in saying that it does precisely the opposite. The visit of Iran's president, Mahmoud Ahmadinejad, is another example of a diplomatic omission that verges on hypocrisy. 
On July 4, 2006, representatives of Argentina, Brazil, Paraguay and Uruguay met in Caracas to sign the protocol for the entrance of Venezuela into the Southern Common Market (Mercosur). After two and a half years, the protocol was approved by the legislative bodies of Argentina and Uruguay, and as of now it may be only days away from being ratified by the continent's economic megalith, Brazil. 
Some sectors of the fight against AIDS have suggested that Thabo Mbeki, the former president of South Africa, committed genocide through his absence from the fight against the illness in his country throughout his two terms. 
One hundred and eleven years after Brazil abolished slavery, the number of workers deprived of their freedom is still huge. They raise cattle, produce charcoal, sugar cane or timber. Some of them, most undocumented Bolivians, work in basements of small apparel factories in São Paulo and other metropolis. 
On November 7, 2009 a few friends and I had an opportunity to take a look inside a Brazilian jail outside the city of Rio de Janeiro. We were able to take some amateur footage of our experience on video (see link below). It's no surprise, of course, that the typical Brazilian jail lacks some of the functionality of those in North America or Europe, but our experience that day was quite shocking. 
Depletion of the Amazon Rainforest is not a new concern facing environmentalists, biologists, ecologists, and a growing number of the Amazonian indigenous peoples. For decades they have feared for the fate of the world's most biologically diverse and species-rich hothouse. 
Geisy Arruda made history this week in Brazil, but for all the wrong reasons. What began as a poorly planned fashion statement has become a worldwide tale. Geisy decided to wear a pink mini-dress to her private college in São Paulo state, and after that, all hell broke loose.
That is not what AES the Genius in Finances and Economy was telling just...yesterday !!!!!!
Who should we trust ?
LAUGH....LAUGH....LAUGH....LAUGH....LAUGH !!!!!