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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (57247)	12/16/2004 4:05:32 AM
From: elmatador	Respond to of 74559

Capital spreading more evenly. Latin America's economy is growing at its fastest rate since before the debt crisis of the 1980s, helped by strong commodity prices and buoyant demand from China. Latin American economies forge ahead By Richard Lapper in São Paulo Published: December 15 2004 20:18 \| Last updated: December 15 2004 20:18 Latin America's economy is growing at its fastest rate since before the debt crisis of the 1980s, helped by strong commodity prices and buoyant demand from China. The United Nations Economic Commission for Latin America and the Caribbean (Eclac) said on Wednesday that the region would expand by 5.5 per cent in 2004, a result that would “exceed the most optimistic forecasts” and be its best year since 1980. Eclac's preliminary figures show that growth was also ahead of the world average in spite of a capital outflow in net terms of nearly $20bn. That occurred partly because of a decline in local interest rates and partly because governments have taken advantage of current account surpluses to repay foreign currency debts. “The region has become less dependent on international capital markets in the last couple of years,” said José Luis Machinea, Eclac's secretary-general, noting a fall in the level of external debt from 42.8 per cent of GDP in 2003 to 37.2 per cent. The outcome is in sharp contrast to the situation early this decade when Latin America was hit by crippling financial crises and seemed beset by chronic political turmoil. Only two years ago Brazil, South America's biggest economy, was widely expected to follow Argentina into default. Today, the market's perception of political risk measured by the relative cost of dollar borrowing compared to the US has improved, with bond spreads near their all-time low. The expansion has been underpinned by a continual improvement in Latin America's ability to sell abroad. Rising commodity prices have helped, with the terms of trade the relative prices of exports compared with imports improving by 5.6 per cent in 2004 compared with a rise of 1.3 per cent in 2003. But export volumes have also been rising, with earnings up by 22.4 per cent. For the first time since 1997 and for only the second time in 20 years growth was faster than 3 per cent in all six of the biggest economies, especially in Argentina (up by 8.2 per cent), Uruguay (up 12 per cent) and Venezuela (up by 18 per cent), all of them emerging from their deepest financial crises in modern history. However, unusually for Latin America, recovery was not associated with a rapid rise in imports, allowing the region to record its second successive current account surplus. Last year's surplus was the first for half a century. “Companies are becoming much more used to operating in more open economies. We are still a long way from the Asian experience but there has been a bit of a structural change,” said Mr Machinea, a former Argentine economy minister. The increasing dependence of Brazil, Argentina and other countries in the south of the region on raw materials exports to China could be a problem, but Mr Machinea said that to depend on an economy “that grows 8 to 9 per cent per year isn't a bad business”. Lower world growth next year and softer commodity prices would bring the rate of expansion down to about 4 per cent in 2005, Eclac predicted, and there was a risk the region could be vulnerable to any sharp slowdown in US or Chinese growth or increased protectionism. That vulnerability underlined a necessity to increase domestic savings and investment. Last year, capital investment rose but the 18.8 per cent of economic output it represented was still lower than the average 19.6 per cent achieved in the 1990s. The region also needed to manage trade surpluses in a way that could increase long-term economic productivity. Eclac said it was “more important than ever” to diversify and maintain stabilisation funds alongside those introduced by countries such as Chile that take account of the economic cycle.