Latin America Economic Future?

Crazy: Doing the same thing over and over, and expecting a different result.

US - latam growth - economist-comIt is indisputable that the Latin America economy has been growing over the last 10 years, sometimes as in the case of Panama’s 9%, at rates that even China may envy. The growth has been consistent in almost the whole region, from the classical economies of Chile and Brazil, to the new developing economies of Peru, Panama, Colombia, and others; the Latin America countries and governments are benefiting from a financial windfall the likes of which they haven’t seen probably since the old spanish conquest and the pillage of gold and other resources at the time. Still it seems that the region has not learned the lessons from the past, and holds on to their tried and often failed policies of posturing and appeal to the extreme right and left sections of the society.

The case of Panama:

Panama, with the potentially fastest growing economy in the region, is feeling the effects of both the growth and the social unrest derived from the government and private industry policies of the last few years. In a country with barely 3.6 million citizens, the government has launched overwhelming projects with in some cases contradictory sets of expectations. On one side the government is expanding the Panama Canal (the primary source of income for the nation), and building a metro to alleviate Panama’s congested traffic, with clearly understood benefits for the country. On the other hand social unrest has derailed plans to privatize the Colon free trade zone, and the development of a hydroelectric complex in Chiriqui. One of the potential reasons is the heavily divided government, with the President and Vice-President from different and opposed political and ideological parties, refusing to work together to help the country continue to grow and seemingly interested in only promote their winnings and criticize their opponent.

The case of Peru:

The Macchu Picchu, a UNESCO World Heritage Sit...

Peru’s economy has grown at an unprecedented 7% over the last eight years fueling a boom in real estate, shopping, and social projects alike. As a consequence of this growth even the country’s own economists and bankers recognize that between the increasingly strong exchange rate, the housing boom, the underdeveloped educational system, and the political fragility, the country’s future could be at risk. Still the expectations of a growth between 5-9% for the next five years it is very attractive for U.S. and E.U. companies and individuals looking at their countries expected paltry 0-2% rates. Let’s hope the peruvian government can continue to carefully balance their plans to maintain a balanced growth, and that starts to also develop the necessary political and educational infrastructure to meet their future needs.

The Politicians:

Latin America

Politics in Latin America seem to have changed very little in the last half century, and only some of the players have changed. From the old times of the socialist and populist governments in Chile, Argentina, and Cuba; to the new times with socialist and populist governments in Cuba, Argentina, and Venezuela, not a lot has changed. In the region there seems to be always a triumvirate of social revolutionary wannabes, attempting to ignore any financial and economic rules in order to “help the underprivileged”; and help themselves in the process. Even the latest regional countries conclave could be considered a failure when only two E.U. presidents even bother to assist, and the focus of the event was again the already aging 1990s Mercosur trade talks. Let’s hope that the next few years teach the local politicians that they are supposed to “serve” their countries, and not the opposite.

For Business:

With all these sometimes contradictory news still Latin America is “open for business” as we speak. Growth rates from 4-5% in Chile, Brazil, to 7-9% in Peru and Panama, are almost unheard of in today’s 0-2% U.S. and E.U. expected growth rates. Politically the region is more stable than 25 years ago, and the recent demise of Venezuela’s socialist Hugo Chavez, and the announcement of the retirement of the longest running dictatorship in the world Cuba’s Castro family, opens the door to further regional movement to a more moderate and less volatile political environment. Business should continue to take advantage of the growing opportunities in the region, while at the same time reducing their exposure to currency exchange issues as it is happening in Venezuela, and Argentina; and to political and social unrest as it is the case in Panama, and Cuba. With a well developed strategy to manage these issues, companies should be able to prosper, while at the same time contribute to the development of the region.

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