| | |  Americas & Beyond | September 2008 
Latin American Leaders Seek to Bolster Confidence
 Joshua Goodman - Bloomberg
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Latin American leaders are seeking to bolster confidence that the region's economies can withstand a prolonged U.S. slowdown as investors sent stocks tumbling.
Brazilian finance minister Guido Mantega told reporters today there's a "very small risk" the U.S. financial crisis will spread to Latin America's largest economy. Mexican Finance Minister Agustin Carstens said his country would have been harder hit earlier in the decade. In Argentina, which recovered from its own economic meltdown in 2001, President Cristina Fernandez de Kirchner said the economy was "holding fast" while the U.S. is "collapsing like a bubble."
Latin American stock markets this week saw their sharpest sell-off since Brazil devalued its currency in January, 1999. The MSCI EM Latin America Index plunged 14 percent to its lowest level in more than a year. Brazil's Bovespa Index, the region's largest, fell 6.74 percent today to its lowest level in more than a year. The country's currency has weakened 12.5 percent this month against the dollar, more than all 16 major currencies tracked by Bloomberg. Together with currencies from Colombia and Chile, all are also trading at one-year lows.
'Ask Bush'
Brazilian President Luiz Inacio Lula da Silva took the sell- off in stride. When asked about the crisis yesterday by reporters he joked: "What crisis? Go ask Bush."
Economists such as Rodrigo Valdes, chief Latin American economist at Barclay's Capital, said governments have good reason to believe they can weather the current crisis.
"Clearly, Latin America has been dealt an important shock, but its countries are better prepared than in the past to confront the problems that are coming," he said in telephone interview from New York.
Mantega, speaking to reporters, said the government may take steps to encourage lending for investments, exports and agriculture should companies be unable to access external credit for very long. Foreign banks suspended more than $12 billion in syndicated loans in the works to Brazilian companies, Valor Economico newspaper reported today.
"Maybe it's a temporary situation that will be solved," Mantega told reporters in Brasilia. "But if there's a lack of lending, the government will take the measures to provide it."
Brazil Reserves
Brazil is benefiting from record reserves of $208 billion, falling debt levels and robust economy that expanded 6.1 percent in the second quarter from a year ago. The central bank last week raised interest rates for the fourth time since April, to 13.75 percent from 13 percent, in a bid to cool domestic demand that has kept inflation above the government's 4.5 percent target since January.
In Mexico, low levels of external public debt and abundant bank liquidity would limit the impact of a U.S. credit crunch on financial markets, Carstens said in an interview today on the Televisa network.
Still, he said the forecast of 2.4 percent economic growth this year may be lowered if trade with the U.S., destination for 80 percent of its exports, slows more than expected. The government may also have to revise its 2009 budget after crude prices fell, he said. Oil sales account for about 40 percent of Mexico's budget.
Stabilization Fund
Chile, South America's most open economy, is betting a record budget surplus and economic stabilization fund that rose to $19.8 billion on July 31 will help it get past a drop of about 17 percent in the price of copper, the country's chief export. The central bank has been buying dollars since April as insurance against a possible U.S. financial collapse. Finance Minister Andres Velasco said today that the spread on the country's credit default swaps was the "most stable" in the world among developing countries.
"We are better prepared to face the convulsions in the international economy today than ever in the history of Chile," Velasco told reporters today after meeting with central bank president Jose De Gregorio.
Argentina's Kirchner said her country was continuing to create jobs, build reserves and boost industrial production even as the country's five-year credit default swaps rose yesterday to more than a three-year high. The cost of protecting the country's debt against default surged 173 basis points to 11.85 percentage points today, according to Bloomberg data. That means it costs $1,185,000 per year to protect $10 million of Argentine debt.
Venezuelan President Hugo Chavez said yesterday he's not worried about a sharp drop in prices of crude oil, which accounts for 90 percent of the country's exports. He reveled in the irony of seeing Wall Street's "giants crashing."
"We should go look for all the Lehman reports from the past 5 years on Venezuela," Chavez said on national television. "They were always producing negative reports about Venezuela. They forgot about themselves."
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19(at)bloomberg.net |
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