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 |  Subject: Divided Latin America pits fast-growing Pacific nations against lagging Atlantic  Mon Jun 02, 2014 2:13 am | |
| The end of a decade-long boom driven by cheap money and strong commodity prices has deeply divided Latin America between fast-growth countries along the Pacific coast and stragglers on the Atlantic.
Venezuela, Brazil and Argentina, which make up 98 percent of the combined economies of the Mercosur trade bloc, will grow an average of 0.6 percent this year, according to the International Monetary Fund’s latest World Economic Outlook. Chile, Peru, Colombia and Mexico, which formed the Pacific Alliance trade group in 2011, will grow 4.2 percent.
The divide has little to do with western Latin America facing a dynamic Asia and China or the eastern region’s exposure to a Europe still recovering from crisis. The countries faring better have opened their economies, adopted market-friendly policies and generate more productivity and investment prospects, said Ramon Aracena, chief Latin America economist at the Washington-based Institute of International Finance, or IIF.
“Some countries partied and splurged during the boom years, others did their homework,” Aracena said in an interview in Bahia, Brazil. “Latin America is no longer a unified block with a synchronized business cycle.”
Atlantic countries spent more, including on subsidies and social welfare, while saving and investing less. In Brazil, current spending is double the Latin American average and domestic savings are 16.4 percent of gross domestic product, compared with 20.8 percent in the Alliance countries, according to an April report by Goldman Sachs.
Investors and rating companies are taking note. Moody’s Investors Service raised Mexico’s credit rating to A3 in February, four levels above junk. A month later, Standard and Poor’s downgraded Brazil to BBB-, the lowest investment grade, a move that was partially anticipated by investors and left bond yields little changed.
“Money follows growth,” Ricardo Espirito Santo, president of the Brazilian unit of Espirito Santo Investment Bank, said in an interview, citing opportunities to finance operations in Mexico’s opening energy sector. That country “is doing well, so we’re focusing our activities there.”
Even though Mexico’s 3 percent growth rate is the slowest in the Pacific Alliance this year, it will outpace Brazil’s 1.8 percent, the fastest pace among the Atlantic group.
Direct equity-investment inflows, the IIF’s measure of foreign-direct investment, rose to 2.8 percent of GDP in 2013 for the Pacific nations from 2.1 percent a decade earlier. In Brazil, the level rose to 1.9 percent from 1.7 percent, while dropping in Venezuela and Argentina to 1 percent from 1.8 percent.
Examples abound in the Atlantic countries where a heavy government hand in capping prices and taxing capital or trade flows has squeezed profits, reduced investments or crimped demand.
The Argentine government in December slapped a 50 percent tax on foreign autos with a pretax value of more than 210,000 pesos ($26,021) to slow a drain on international reserves, which hover near a seven-year low. That came on top of a 19 percent devaluation of the peso in January that caused consumer prices to surge. Car sales fell 40 percent in April from a year earlier to 51,346 units, according to the Argentine Automakers Association.
“This month we haven’t sold anything, and last month we sold very little,” said Tomás Herrera, owner of a dealership in Buenos Aires that specialized in luxury cars and now handles cheaper models.
More: http://www.ticotimes.net/2014/06/01/divided-latin-america-pits-fast-growing-pacific-nations-against-lagging-atlantic
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