GROWTH THE KEY FOR LATIN AMERICA
20 enero 2010
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Published by The Wall Street Journal, US
Latin America's economies showed surprising resilience during one of the worst economic downturns in modern history, avoiding the borrowing spree that traditionally followed previous crises in the developed world.
With a fragile global recovery in sight, they need to return to higher growth rates in order to fuel development and the rise of the middle class, a new report says.
In its latest outlook for the region, rating agency Moody's Investors Service says that Latin America could slip into a vulnerable financial condition if it doesn't grow at a faster clip. Economists have argued for growth rates above 6% in order to improve living standards in a region still plagued by underdevelopment.
"Latin America did very well in this crisis, better than we would have expected," said Gabriel Torres, an economist at Moody's and the author of a report published Wednesday. "But to continue doing well, it needs strong, predictable and sustainable growth."
Another challenge the region faces this year is politics, an issue that plays a larger role in Latin America's sovereign ratings than any other area Moody's covers. With a series of elections this year—Costa Rica, Colombia, Dominican Republic, Suriname, Venezuela, Brazil and Peru—Moody's says the biggest difference will be in countries that seek stronger institutions.
Brazil's stability during the crisis made it the poster child for Latin America in 2009, emerging as a world-class power as the developed nations struggled to stabilize their financial systems and economies. Moody's also upgraded Uruguay, Belize, Chile, Bolivia and Peru in 2009.
In its report, Moody's credits the improved outlook on greater central-bank credibility, more flexible exchange rates, improved fiscal positions and stronger financial systems.
The main upshot is a manageable public debt for many nations, a relatively new development in a region accustomed to boom and bust cycles, and one that stands in stark contrast to most of the developed world.
Moody's forecasts a median government financial balance of -2.6% of gross domestic product in 2011, compared to double-digit fiscal deficits elsewhere.
But the ratings agency expects median annual growth to stay below 3%, compared to more than 5% between 2004 and 2007 before the global financial crisis.
This could leave Latin America behind other emerging markets in addressing development needs to address poverty, said Mr. Torres. Asia is growing faster and the report notes that Emerging Europe's gross domestic product per capita is on average twice as high.
"Sustainable growth has always been a problem for the region in recent decades," he said.
Other investors say a rebound in Asia will help spur on Latin American assets, particularly for exporting nations feeding demand from China.
"Growth is going to be divergent between different countries in Latin America," said Cathy Hepworth, who helps manage $10 billion in emerging market fixed-income assets at Prudential Financial. "The countries that will post strong growth are those that have an export bias to commodities," she said, adding that Brazil's growth rate will likely exceed 5%.
BofA Merrill Lynch also anticipates mixed results across Latin America, with above consensus growth out of Venezuela and Colombia.
Latin America's economies showed surprising resilience during one of the worst economic downturns in modern history, avoiding the borrowing spree that traditionally followed previous crises in the developed world.
With a fragile global recovery in sight, they need to return to higher growth rates in order to fuel development and the rise of the middle class, a new report says.
In its latest outlook for the region, rating agency Moody's Investors Service says that Latin America could slip into a vulnerable financial condition if it doesn't grow at a faster clip. Economists have argued for growth rates above 6% in order to improve living standards in a region still plagued by underdevelopment.
"Latin America did very well in this crisis, better than we would have expected," said Gabriel Torres, an economist at Moody's and the author of a report published Wednesday. "But to continue doing well, it needs strong, predictable and sustainable growth."
Another challenge the region faces this year is politics, an issue that plays a larger role in Latin America's sovereign ratings than any other area Moody's covers. With a series of elections this year—Costa Rica, Colombia, Dominican Republic, Suriname, Venezuela, Brazil and Peru—Moody's says the biggest difference will be in countries that seek stronger institutions.
Brazil's stability during the crisis made it the poster child for Latin America in 2009, emerging as a world-class power as the developed nations struggled to stabilize their financial systems and economies. Moody's also upgraded Uruguay, Belize, Chile, Bolivia and Peru in 2009.
In its report, Moody's credits the improved outlook on greater central-bank credibility, more flexible exchange rates, improved fiscal positions and stronger financial systems.
The main upshot is a manageable public debt for many nations, a relatively new development in a region accustomed to boom and bust cycles, and one that stands in stark contrast to most of the developed world.
Moody's forecasts a median government financial balance of -2.6% of gross domestic product in 2011, compared to double-digit fiscal deficits elsewhere.
But the ratings agency expects median annual growth to stay below 3%, compared to more than 5% between 2004 and 2007 before the global financial crisis.
This could leave Latin America behind other emerging markets in addressing development needs to address poverty, said Mr. Torres. Asia is growing faster and the report notes that Emerging Europe's gross domestic product per capita is on average twice as high.
"Sustainable growth has always been a problem for the region in recent decades," he said.
Other investors say a rebound in Asia will help spur on Latin American assets, particularly for exporting nations feeding demand from China.
"Growth is going to be divergent between different countries in Latin America," said Cathy Hepworth, who helps manage $10 billion in emerging market fixed-income assets at Prudential Financial. "The countries that will post strong growth are those that have an export bias to commodities," she said, adding that Brazil's growth rate will likely exceed 5%.
BofA Merrill Lynch also anticipates mixed results across Latin America, with above consensus growth out of Venezuela and Colombia.
