Latin America prepares for economic downturn

August 23, 2011 · Posted in options trading · Comment 
Tom Ramstack – AHN News Legal Correspondent

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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