Latin American economies appear to be waving goodbye to the global financial crisis and welcoming recovery. The World Bank and International Monetary Fund (IMF) released reports this week predicting regional growth will hit at least 4 percent in 2010. With recovery occurring faster than previously predicted and emerging markets leading the charge, Latin America’s rebound ranks second only to Asia’s. Still, challenges remain, such as increased poverty rates stemming from the recent downturn and worries about future asset bubbles similar to those experienced in advanced economies.
"These countries have shown their own resilience. Their economic policies have been sound and they’ve been able to conduct countercyclical policies."
Chairman of Roubini Global Economic and New York University Professor of Economics Nouriel Roubini joined AS/COA Online's Carin Zissis for an exclusive interview regarding Latin America's economic outlook. Roubini forecasts and regional growth rate of 3.8 percent for 2010. He also offered his outlook for specific countries, including Brazil, Mexico, and Venezuela.
AS/COA: In October you upgraded the growth outlook for Latin America for 2010 from 3 percent to 3.3 percent. Tonight you placed it at 3.8 percent.
Roubini: Yes, we’re doing our quarterly update to our global economic outlook and, as of now, we’re going to come out with it in early January, it’s probably going to be 3.8 percent for Latin America next year.
AS/COA: What is behind this increasingly positive outlook for Latin America?
Venezuelan President Hugo Chávez marked the eleventh anniversary of his first electoral victory by announcing the resignation of a close advisor in connection with a corruption scandal. The Venezuelan government took over seven small private banks in recent weeks, setting off financial jitters as observers wondered whether Caracas would nationalize the country’s banking sector. The banks mismanaged public funds, says the government, which issued dozens of warrants for and arrested eight bankers linked to the scandal. Arné Chacón—brother of science and technology minister, Jesse Chacón—was among those arrested, prompting the minister’s resignation.
Chávez revealed the news in episode 345 of his weekly address Alo Presidente. The leader also announced the takeover and reopening of several of the banks through a new state entity called Banco Bicentario. Despite the seizure of multiple institutions, the seven private banks accounted for as little as 8 percent of total deposits in Venezuela. Still, the institutions appear to have had close ties to the Chávez government. The four banks (Banco Provivienda, Banco Canarias, Banco Confederado, and Bolivar Banco) initially seized in November represented a quarter of the government’s funds in the banking system. Ricardo Fernández Barrueco, among the banks’ directors and those arrested, allegedly made his wealth through projects that supplied food to the government’s subsidized supermarkets.
Last week, Chávez said he had “no problem” nationalizing banks that misappropriated state funds and failed to extend credit to the poor. Days later, the government seized three more banks—Baninvest, Banco Real, and Central Banco. The Venezuelan bolivar, which skidded in the wake of the interventions, recovered Monday as worries eased about short-term nationalization of the banking sector. But The Wall Street Journal reports that Chávez’s anti-corruption drive may win points with the Venezuelan public and distract from woes that range from power outages to a recession. On top of that, a group of Venezuelan college students held a 17-day hunger strike that ended December 8. The protesters sought OAS attention for their complaints of government abuses, including arrests of opposition leaders.
Former Central Bank Governor Domingo Felipe Maza Zavala said in an interview over the weekend that the current banking crisis may not run as deep as did the country’s 1994 economic crisis. Still, he said the takeovers could spell rising inflation, supply shortages, and additional rationing of electricity and water services in the coming year.
In an AS/COA interview, Patrick Esteruelas, a specialist in the Andean region with Eurasia Group’s Latin America practice, about the effects of the dropping price of oil on Venezuela’s economy. “Venezuela can count on a sizeable cushion of reserves and foreign exchange liquid assets to help it ride the current economic down cycle,” he tells AS/COA Online's Managing Editor Carin Zissis. “But not for very long.” Esteruelas also talks about the reasons behind President Hugo Chávez's decision to hold a referendum on the elimination of presidential term limits in February.
AS/COA Online: Speculation has mounted that, with the sharp drop in the price of oil, Venezuela’s economy could be under serious threat. Yet some argue that country’s economy stands well-girded because of the high oil prices in recent years. What do you make of this debate and what are the economic outcomes Venezuela faces as a result of the oil price drop?
Esteruelas: I would say that Venezuela can count on a sizeable cushion of reserves and foreign exchange liquid assets to help it ride the current economic down cycle. But not for very long. By all accounts, Venezuela is destroying assets much more quickly than it’s been building them, given today’s oil prices. The country has somewhere around $60 billion in foreign exchange liquid assets, which include just shy of $30 billion in foreign exchange reserves, just shy of $20 billion in the foreign exchange development fund, and then the rest equitably split along the discretionary government funds and cash dollars held by PDVSA [Petróleos de Venezuela].
Managing Director and Global Head of JPMorgan Chase’s Emerging Markets Research Group Joyce Chang talked with AS/COA Online Managing Editor Carin Zissis about Latin American markets and how they will face a U.S. economic downturn. JPMorgan predicts 5 percent or more growth for emerging market countries in 2008, says Chang, who notes that “the commodities rally continues to support terms of trade in Latin America." Chang says, “China is critical for emerging market economies given that it has been the key source of marginal demand for commodities in recent years.”
AS/COA: Debate has raged in recent months over how the U.S. recession will affect the global economy. How are Latin American emerging markets faring given the U.S. economic downturn?
A high-profile delegation led by Treasury Secretary Henry Paulson, five other cabinet members, and Federal Reserve Chairman Ben Bernanke applied for trade relief in Beijing this week, a stark reminder for Americans of how the world has changed. Along with the Sino-U.S. trade imbalance, talks tackled China’s undervalued currency, intellectual property rights, and American hopes of opening up (China Daily) the Chinese market to foreign investors. The first semiannual Sino-U.S. economic summit was part of the “strategic economic dialogue” launched by Presidents Bush and Hu Jintao in September. Writing in the Washington Post, Paulson called the summit a “pivotal moment for China and for our relationship with that country.” But the trip yielded few signs of concrete progress. China agreed to allow the New York Stock Exchange and Nasdaq open offices in Beijing, but there was no agreement on letting the yuan appreciate. "We have a point of view that there's more risk in going too slowly than there is in going too fast, and the Chinese see that differently," (Reuters) Paulson said at the summit's close. This CFR.org Backgrounder examines the major issues—trade imbalance, currency concerns, protectionism, and intellectual property—dogging the Sino-U.S. economic relationship.
More than three decades after a communist offensive reunified Vietnam, the party’s hold on power and civil society remains unchallenged. But twenty years of liberal economic reforms have brought sweeping changes and foreign investment to a nation characterized by increasing industrialization and a reduction in poverty. The Socialist Republic of Vietnam is poised to become a member of the World Trade Organization (WTO) in November. Despite improved relations with the United States since the two countries normalized relations during theClinton administration, a holdup in the U.S. Congress could stall Hanoi’s full accession into the WTO.
More than three decades after the fall of the U.S. backed South Vietnamese government in Saigon, the Socialist Republic of Vietnam is experiencing an economic boom, and is poised to become the 150th member of the World Trade Organization (WTO). Last year China was the only Asian country to surpass Vietnam in terms of GDP growth (NYT). This new Backgrounder takes a look at Vietnam’s startling economic expansion.