Latin America prepares for economic downturn
Washington, DC, United States (AHN) – Latin American finance ministers are trying to shield their countries from disaster amid predictions U.S. government budget cutbacks could hurt the region’s economies.
Economic ministers from the 11-nation Unasur organization met last week in Buenos Aires, Argentina, to discuss defensive strategies. They are working on an agreement that would create a roughly $12 billion emergency fund to bail out collapsing economies.
They also seek to reduce their dependence on the U.S. dollar for international trade and to develop policies to balance their trade deficits.
Unasur consists of Brazil, Colombia, Bolivia, Chile, Ecuador, Guyana, Paraguay, Peru, Surinam, Uruguay and Venezuela.
So far, Latin America’s economy has avoided the worst of the economic collapses in the United States and Europe that began in 2008 with a stock market collapse and recession. A brief drop in commodities prices along with government spending programs that shored up declining industries helped them avoid the worst of the crisis. However, economists predict the resilience of Latin American economies will not last much longer.
South American economies grew at an average of 6.6 percent last year, according to the International Monetary Fund.The Fund’s economists predict growth will slow to 4.7 percent this year and 4.1 percent in 2012.
By comparison, U.S. economic growth this year is running at 2 percent. Some European countries are showing no growth.
Stock markets in Latin American countries fell as much as 15 percent last week on news the credit rating service Standard & Poor’s downgraded the U.S. credit rating to double-A plus from triple-A.
Augusto de la Torre, the World Bank’s chief economist for Latin America and the Caribbean, said this week the outlook for Latin America is uncertain as concerns grow about another crisis for the United States and Europe.
China could be the next to falter as Western markets dry up for their manufactured products, he said.
“If China has a hard landing, that will hit us hard,” de la Torre told the Peruvian news media during an economic meeting.
Unasur leaders are exploring options to increase trade with China as its Western markets for manufactured products fizzle.
Protecting the economy is a major campaign issue in Argentina, where current president Cristina Fernandez won a landslide victory in primary elections this week.
She said at a press conference after the primaries that keeping Argentina’s economy strong would be a top priority for her if she is re-elected in October.
Low-income persons are most likely to be hurt by U.S. budget cuts that could reverberate around the world, including Argentina, she said.
Wall Street economists warn that her policies of price controls and using central bank reserves to pay debts could backfire for South America’s third largest economy.
The policies strengthen government control but depress market forces that help to balance the economy, according to some economists.
Argentina’s inflation rate is running close to 25 percent.
Other economic concerns are arising in Brazil, where inexpensive imported products are hurting the domestic manufacturing industry.
Chile and Peru still have stable economies as investors try to protect their assets by purchasing gold and copper, but economists predict declines in the precious metals market.
A decrease in demand for oil is depressing the economies of Venezuela and Mexico.
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British Company Finds Oil Off Falklands Islands
Port Stanley, Falkland Islands (AHN) – British exploration company Desire Petroleum Plc has announced it found oil off the South American Falkland Islands in the South Atlantic.
This is the second oil find in that region this year. Earlier in the year, Rockhopper Exploration Plc found the first potentially commercially viable oil field there.
Observers expect this find to reignite a diplomatic dispute between the United Kingdom and Argentina over the territory the U.K. calls the Malvinas, which both nations claim.
In 1982, Britain went to war with Argentina to protect its claim to the region, which is 8,000 miles from the United Kingdom.
Desire stock shares rose by 24 percent on the news and at times traded by as much as 51 percent higher.
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Irish Corporate Depositors Withdraw Money
Dublin, Ireland, United Kingdom (AHN) – Despite the agreed $105 billion (70 billion pounds) bailout for Ireland, trouble continues to hound Dublin as corporate depositors panicked and withdrew their savings.
The Irish Central Bank admitted Tuesday that major international firms had been withdrawing their deposits from Ireland, which worsened the anxious mood of the market.
The chief investment officer of a major bond manager described Irish banks as bleeding deposits, recalling it was the same phenomenon that happened in Argentina and other emerging economies.
With the bailout, Ireland’s banking sector will be recapitalized, which would place the Allied Irish Banks into state control and the government majority stake in Bank of Ireland. The effect of this would be a mandated increase in capital cushions for the Irish banks from 8 to 12 percent. The move is expected to improve confidence in Ireland’s banking sector and stop the financial hemorrhage.
More than half of the bailout would be used to fund Dublin’s deficit spread over three years, while the remaining balance would be used to recapitalize banks and serve as contingency fund.
Markets are also still shaky that borrowing costs for Portugal and Spain jumped to dangerous levels over fears that European Union leaders are losing political control over the Irish crisis.
On Tuesday, yields on 10-year Portuguese bonds went up to 6.9 percent, which repeats the pattern of what happened to Greece and Ireland before these two nations were capitalized by the EU and the International Monetary Fund.
Spreads on 10-year Spanish bonds also grew to a record of 233 basis points over Bunds, which pushed the yield to 4.87 percent. With this development, Spanish Central Bank Governor Miguel Angel Fernandez Ordonez called on Madrid to fast track fiscal reforms to convince the market that Spain could put its house in order.
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