There are two known unknowns when looking at South America’s economies: China, and everything else. Over the past decade, the Chinese-driven commodity price boom indiscriminately lifted the region’s commodity economies, however well or badly they were managed. But now that the boom is over, the “everything else” category is starting to bite. That is true of Argentina, Brazil, Chile and Venezuela– all of which, to a greater or lesser degree, are now suffering the political ructions that slower growth produces. It is also true of Peru, long the continent’s economic star. Over the weekend, Luis Miguel Castilla, the country’s respected finance minister (pictured), unexpectedly resigned from his post. Continue reading »
On Tuesday night, halfway through announcing what he had trailed earlier would be a major cabinet re-shuffle, Nicolás Maduro (pictured) let slip a telling phrase. The Venezuelan president praised outgoing oil minister Rafael Ramírez because, as Maduro said, he had rescued the country from “the claws of the meritocracy”. No kidding. Continue reading »
Imagine an Argentina without holdouts – “it isn’t hard to do”, as John Lennon might sing. Investors are already doing so. The Buenos Aires stock market has soared 9 per cent since Cristina Fernández said last week that her country would negotiate with the holdouts, led by NML Capital. Argentine bonds have also rallied. Meanwhile, the economy has slipped into recession, partly because a shortage of foreign exchange has compressed imports.
Yet if the holdout issue was resolved, credit markets would re-open, foreign investment might soar, and currency shortages would no longer be a binding problem. Just imagine! Then the real economy would grow again, too. Continue reading »
Expectations can be a terrible burden. Take the World Cup. No European football team has ever won the tournament on Latin American soil. That is partly why Brazil and Argentina are the favourites to win. Question: will they pull off a victory under so much pressure
Now take economies. Not long ago, emerging markets were all the rage, while deflation-bound economies of the eurozone were just about written off. Times have changed, however. When it comes to economic expectations, Latin America has already lost the cup to Europe’s teams. Continue reading »
Should one laugh or cry over Venezuela? The answer is: it depends on who you are, and when. Usually, it is investors and businesses that do the crying. That is especially so since President Nicolás Maduro (pictured) took charge after Hugo Chávez’s death last year and struggled to control chavismo’s disparate factions. As a result, policy making was paralysed. Increasingly, though, it seems that Maduro and the pragmatists are gaining the upper hand, at least over the country’s more militant radicals. They now seem to be doing more of the crying. Continue reading »
Argentina has agreed to repay its debt to the Paris Club of creditors in the latest sign of its desire to win back investors, normalise international financial relations and regain access to capital markets lost after its $100bn sovereign default 13 years ago.
The country will repay the Paris Club $9.7bn of arrears over five years, so reopening export credit mechanisms from bilateral creditors, such as the US, Germany and Japan. Argentina has also recently settled compensation claims with Repsol, the Spanish oil company; the World Bank’s arbitration unit, ICSID; and has re-instated slightly better economic statistics at the IMF’s behest. Continue reading »
“Panama is more than just a canal,” runs the country’s tourist slogan. Last weekend, the tiny country proved it so in an upset election in which the biggest winner was Panama’s fledgling democracy. A tweetable summation might go something like: “Panama – potential caudillos in retreat”. Continue reading »
Carlos Slim’s foray into Europe is not so much a case of “once bitten, twice shy” as “try, try and try again”. Having failed last year to buy Dutch telecoms operator KPN, the Mexican tycoon has launched a takeover bid for Telekom Austria. Total cost to Slim’s América Móvil? Not including its current 27 per cent stake, about €2.1bn.
That includes the €1.4bn cost of buying the 45 per cent of Telekom Austria that is publicly traded. In addition, there will be América Móvil’s pro-rated €700m share of a subsequent capital increase, which will help shrink Telekom Austria’s chunky leverage (the group has almost €5bn of debt). Continue reading »
The Pacific Alliance is all the rage in Latin America. As today’s FT special report shows, the members of this newly-formed free trade pact include some of the region’s best-managed and most reform-minded economies: Chile, Colombia, Mexico and Peru. These countries do not represent some kind of Platonic ideal. They suffer problems aplenty. But their governments do pride themselves on hard-nosed business dealing rather than gassy ideology. That being the case, is there a way for portfolio investors to actually trade the idea? Continue reading »
That was then
Back in 2008, President Luis Inácio Lula da Silva boasted that the tsunami of the global financial crisis would register barely a ripple, uma marolinha, in Brazil. Bar Mexico, this was true for the rest of the region too. Today, though, Latin America is more vulnerable to a devastating “sudden stop” in international capital flows.
As Agustin Carstens, the head of the Mexican central bank, warned last week, such an event could be triggered by higher US interest rates. Or, more worryingly, it could follow a sudden collapse of commodity prices should China’s economy slow abruptly. But how much more vulnerable is Latin America today? About 20 per cent more, according to the Inter-American Development Bank. Continue reading »
When 1m protesting Brazilians took to the streets last year, Dilma Rousseff, the president, sought to defuse their complaints by promising to fix ailing services and make changes to the political system. In contrast, as Venezuelan students and opposition activists have taken to the streets this month, president Nicolás Maduro has responded by calling them “fascists” and “coup-mongers” who want to bring back neo-liberalism and kill off the country’s vaunted social services.
In whose hands, however, are Venezuela’s social advances safest? Continue reading »
Eat humble pie? Not a crumb. After lying about inflation for seven years, Buenos Aires last night revealed a new and more credible statistical series. This, said Axel Kicillof, the economy minister (pictured), was not because the old inflation numbers were wrong. Rather, it was because they needed to be updated. Why? Because Argentine consumption habits had changed, he explained. The government’s new inflation numbers, he added, provide “an X-ray of another country.” Continue reading »
Far be it from Latin countries to indulge in some pre-World Cup schadenfreude. Nonetheless, different emerging markets have clearly been affected very differently by the recent bout of market turbulence. Take those distant neighbours, Colombia and Argentina. Two years ago, finance ministry officials in Bogotá threw a cat among the pigeons when they declared that the Colombian economy was larger than Argentina’s, making it the third biggest in the region (after Brazil and Mexico). Buenos Aires quickly harrumphed back: “Not so!” For one, that might only be the case if you converted Argentine nominal GDP into US dollars using black market (and thus illegal) exchange rates, rather than the “true” official one. Continue reading »
CUCs and CUPs – know your pesos
Monetary reform rarely gets the pulse racing. But on the colonial streets of old Havana, Cuba’s pending monetary reform is one of the hottest topics around.
“My parishioners talk about it all the time,” says one local priest. Even World Bank officials are excited. Augusto de la Torre, the bank’s chief Latin America economist, has just penned a learned article on the subject. There are two reasons why everyone is getting worked up. Continue reading »
There are two ways to read the IMF’s call on Monday night for Argentina to sort out its dodgy inflation and economic statistics by next March – or, uniquely, face expulsion from the international lender.
The first way is that the country will never comply. After all, railing against the IMF has been a rhetorical hallmark of the presidencies of Cristina Fernandez (pictured) and her late husband, Nestor Kirchner. Continue reading »