Latin American economies will continue to stagnate, IMF report predicts; Mexico and Ecuador may buck the trend

Oct 5, 2014 | 0 comments

By Andres Oppenheimer  

The International Monetary Fund (IMF) is scheduled to release its much-awaited 2015 economic projections for Latin America next week, and — judging from what I heard in an interview with the IMF’S chief economist for Latin America — there won’t be much to celebrate.

Alejandro Werner, head of the IMF’s Western Hemisphere department, told me that the region is not likely to emerge from its current economic slowdown in 2015, nor in 2016. What’s worse, some economies — such as those of Argentina and Venezuela — are likely to keep shrinking next year, he suggested.

Werner did not give me official figures, which will be released at the opening of the IMF and World Bank annual meeting of the world’s central bankers and finance ministers starting Thursday in Washington. But he sounded pretty pessimistic about the possibility of a significant recovery from the mediocre 1.5 percent to 2 percent growth rate that most international institutions are projecting for the region in 2014.

“The forecast for 2015 is bad, because growth will be once again among the lowest levels of the past 15 years, and only slightly higher than in 2014,” Werner told me. “The region’s growth will be below 2.5 percent next year.”

Asked which countries are expected to do worst, he cited Argentina and Venezuela, which he said are likely to “continue showing a very weak performance in 2015.” Most economists predict that in 2014 Argentina’s economy will contract by at least 1.7 percent and Venezuela’s economy by 3 percent.

Many Latin American countries — especially in South America — will continue to be hurt by the decline of world prices of the raw materials they produce, by a slowdown in China’s economic growth, and by reduced access to foreign loans. Argentina and Venezuela are further hurt by economic policies that have produced annual inflation rates of nearly 40 percent and 70 percent, respectively.

“Those Latin American economies that are most dependent on raw materials and had a complicated 2014 will have a complicated 2015,” Werner said. “By comparison, those economies that are more tied to the U.S. economy, such as Mexico, will benefit from the expected U.S. economic recovery.”

Asked what countries will be the economic bright spots in the region next year, he cited Mexico — because of its significant exports to the U.S. market — and Colombia. The Colombian economy is more tied to the U.S. market than that of most South American countries, and foreign investments are continuing to flow into the country, he said.

Ecuador is also expected to show continued economic growth, between 4 and 4.5 percent.

Chile and Peru are also likely to do better next year than in 2014, but not by much. “We see a recovery, but not a return to the growth levels of 2012 and 2013 in those countries,” Werner said.

As for the medium-term future, Werner said that Latin America may be able to start a cycle of recovery from its current low growth levels, “but we clearly anticipate a period of a few years in which we are going to see slower growth than what we’ve seen in the past decade.”

My opinion: The IMF’s relative pessimism about the region should be taken seriously, because economic projections by the IMF, the World Bank and the United Nations tend to err on the side of optimism.

In recent years, these institutions’ forecasts for the region have turned out to be at least 1percent higher than the final results, probably because political pressures from member countries drives them to consistently pick the most upbeat scenarios. (For the record, the IMF’s projections have been somewhat less overblown than, say, U.N. figures.)

The main reason for Latin America’s slowdown is not economic, but political. The region is not recovering because Brazil, Argentina and Venezuela, which make up a sizable part of the region’s overall economy, are maintaining populist economic policies that scare away domestic and foreign investors.

As former Brazilian President Fernando Henrique Cardoso told me recently, the governments of Brazil, Venezuela and Argentina fail to understand that “without investment, there is no growth, and without growth, there is no poverty reduction.” It sounds very basic, but they don’t get it.

Credit: The Miami Herald,


Dani News

Google ad

Fund Grace News

The Cuenca Dispatch

Week of June 09

Nene Case Transferred to National Court Jurisdiction Unit Due to Possible Links with Vice President Verónica Abad.

Read more

Ecuador’s Safest Regions Highlight 25 Murder-Free Cantons in 14 Years.

Read more

Kia and Aymesa Announce $62 Million Investment to Assemble Five New Vehicle Models in Ecuador by 2026.

Read more

Google ad

Hogar Esperanza News

Elegant home News

Happy Life