Good news and Bad news in Latin America's

economic prospects

Enrique Szewach- Nexia- October 26 2006

Good News• The IMF is not “lender of last resort”

anymore.• The US current account deficit.• China importing energy, food, metal

imputs, raw material and exporting industrial goods with cheap labor.

Record in world growth, international trade, and commodity prices

Growth, and twins surplus in L.A. in general and in Argentina in particular

The good news in numbers

Growth Current Account Primary Surplus CPI2006 2007 2006 2007 2006 2007 2006 2007

Argentina 7,8 6,3 2,2 1,9 3,5 2,6 10,5 11

Brasil 3,1 3,6 1,1 0,7 4,5 4,2 2,9 3,9

Chile 5,6 5,3 2,5 1,2 7,5 5,1 3,5 3,1

Colombia 5,1 4,1 -2,4 -2,1 2,8 2,6 4,2 4,1

Mexico 6,2 4,8 -0,2 -0,6 2,9 3,1 3,4 3,9

Venezuela 9,5 7,1 16,2 16,4 2,4 3,2 15,5 12,5

The “choices”• Chile: anticiclical fund. Sustainable growth

and low inflation.• Brasil: A reduction in foreign debt, low

growth and moderate inflation.• Argentina: Prociclical fiscal policy, a big

push on demand, “supplied” by overinvestment of the 90´s. An undervalued peso. A drastic and unilateral reduction in public debt. High growth, an important recovery in employment, “formal” real wages, and consumption. High inflation and subsidies and price agreements.

The International scenario

• Soft landing.• Low real interest rates.• A reduction in growth but still

in the positive area.• Commodities and external

demand will remain the core of economic growth.

There is no free lunch• Political institutions and leaderships

very weak and based exclusively in economic performance.

• Lack of structural reforms in the fiscal sector.

• China and real wages of the non skill labor.

• Relative price distortions, subsidies, price agreements and energy supply.

• The size of the local capital market.

Where to invest in Argentina

• Agribusiness in general. Jeopardize buy export taxes and restrictions on exports (beaf), but still with high productivity and profits at these prices.

• Services linked with IT.• Tourism.• Public works.• Goods and services in general with a low share in

the price index (luxury goods and services, advertising, etc.).

• Housing but limited by the “income-credit” problem.

• Production for exports intensive in relatively cheap educated labor.