Latin American Market Analysis

8/8/2019 Latin American Market Analysis

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Stronger financial markets

By mid-September the regions most important stock markets were up for the year,except Brazil (down slightly in reais but up in dollars). Domestic credit and other

banking services expanded, including mortgage lending, especially to lower income

groups.

Solid external performance

Latin America made significant gains on all external fronts except overseas

remittances, which picked up but remained below pre-crisis flows. Foreign direct

investment (FDI) gained momentum during the year and did return to pre-crisis

levels, although there continued to be significant differences among countries .

Current account balances varied across the region. Favorable trade and investment


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flows enabled governments to effectively manage their foreign debts. A final sign of

growing external confidence in Latin America were improved country risk ratings.

1.2 Social EnvironmentThe rapid resumption of growth helped head off a reversal in the social advances

declining unemployment, poverty and inequality achieved during the growth-with-

low-inflation cycle prior to the crisis. Conditional cash transfer programs also played

an important role in reducing poverty and lowering inequality. Between 2002 and

2008, 41 million Latin American were lifted out of poverty (ECLAC).

Improving social environment reinforced economic recovery and centrist

politics

Rising wages translated into a surge in consumer spending that helped cushion

Latin America from the weak recovery of its traditional trading partners, most

importantly the U.S.

Crime and threats to personal security persisted

Although most alarming in Mexico, drug-related violence deepened in Central

America where it was linked to urban gangs. Venezuela emerged as an even more

dangerous place. Even countries like Peru and Chile have seen an increase in ruralviolence related to indigenous land claims and informal mining.

1.3 Political EnvironmentLatin Americas political environment has become more business friendly over the

past decade. Last years quick economic recovery helped institutionalize the


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centrist democratic politics that were taking hold in much of the region. In the four

countries with populist political arrangements Venezuela, Nicaragua, Ecuador and

Bolivia the business environments remained problematic, more so in the former

two than the latter two.

Elections confirmed convergence around center

Of the six presidential elections held since September 2009, the candidates of leftist

parties won in Uruguay and Bolivia; the candidates of the right in Honduras, Chile

and Colombia and an avowedly centrist candidate won in Cost Rica.

1.4 Policy Environment

Moderate policies reflected and reinforced the growing centrist political

consensus. The quick recovery confirmed the efficacy of consistent macroeconomicpolicies prioritizing fiscal discipline, inflation-rate targeting and floating exchange

rates. The more successful countries further added conditional income transfer

programs, thereby moving beyond the Washington consensus model of the 1990s

to a hybrid Latin American approach.

Policy adjustments

Once it became clear that a sustainable recovery was underway, governments

began to shift from expansionary to restrictive fiscal and monetary policies. Centralbanks raised benchmark interest rates, which had dropped to historically low levels

in 2009, as surging GDP growth generated inflationary pressures. The 2009

downturn and countercyclical policy responses produced budget deficits in 2009.


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1.5 Legal EnvironmentDisputes over executive power

While Venezuela and the Dominican Republic abolished term limits by law, in

Nicaragua President Ortega secured a victory when the Supreme Court declared the

constitutionally established term limit unenforceable. Colombia President Alvaro

Uribe secured consent of congress to change the constitution to allow him an

additional term. However, when the constitutional court found the new law

unconstitutional, Uribe acquiesced and did not stand for another presidential term.

Several countries, notably Bolivia, Venezuela, and Panama, witnessed a troubling

increase in the politically-motivated prosecution of the opposition.

Debates about amnesty laws

The debates over the legacy of military rule were revived with calls to annul

amnesty laws for human rights abuses and war crimes.

Indigenous rights

Conflicts between governments and indigenous groups grew more acute in some

countries. Economic, land and water disputes led to violence in Chile and Peru. But

even in countries like Bolivia and Ecuador whose leadership enjoyed the support of

indigenous communities, tensions arose between the state and indigenous groups

over issues such as local autonomy, development rights and electoral

representation. The expansion of traditionally applied justice within indigenous

communities was also controversial, especially in Bolivia.

Documents

Latin American Market Analysis