At one time or another in their modern history, Argentina, Brazil and Chile — like Colombia — have played the role of international pariah through ineptitude, corruption or brutal military dictatorship.
Yet Brazil and Chile, like Colombia, have bounced back strongly from tough times, recently achieving leadership status in the community of emerging nations. Buoyed by high prices on global markets for their grains, metals and forest products, they have become among the world’s most prosperous and stable economies — and most reliable trading partners. But how long will the boom last?
David Lewis, vice president of consultant Manchester Trade in Washington, is cautious about the long-term prospects for these countries. “Latin American exports are booming, but (the countries) are commodity-dependent — with little value-added exports,” he said. “The concern is that the boom won’t be long-lasting, and that the Chinese will be able to drive prices down for Latin America-manufactured exports.”
Few major countries have zigged and zagged in as many directions as Argentina. In recent decades, Argentina has gone from being an economic outcast (in the late 1990s) to a fast-growing economy (mid-2000s), to an uncertain status as an unpredictable nation with a taste for the unpredictable.
After posting one of the world’s highest growth rates in the 1990s, Argentina began to stumble toward the end of the decade. By 2001, its government had stopped paying its creditors, and it later abandoned the peg between the peso and dollar. A decade later, the administration of President Cristina Fernandez de Kirchner is still negotiating with the Paris Club group of creditor nations about its $6.7 billion in debt.
Argentina’s GDP grew by at an annual average rate of 9 percent after 2002, raising hopes for sustainable prosperity. But the 2008-09 recession took a heavy toll on the Argentine economy, as economic growth slowed, and the government pursued policies that restrained exports. GDP growth fell to 0.5 percent in 2009, but bounced back quickly to 9 percent last year, the fastest pace in five years.
But distrust of the government is widespread, and the business climate is unfavorable for foreign investors. Many companies complain about growing state intervention in the economy, including price controls, tax hikes on exports for farmers, inconsistent regulations and the government’s takeover of private pension funds. In time-honored Argentine fashion, powerful trade unions push for wage increases that, critics argue, lead to higher inflation and reduce Argentina’s prospects for exporting value-added goods.
Like de Kirchner, new Brazilian President Dilma Rousseff is a protégé of a powerful former president, Lula da Silva. She is also an experienced administrator and canny negotiator.
By far the largest economy in South America, Brazil — long known as the country “of the future” — suddenly is a power in the present tense, boasting well-developed sectors for agribusiness, mining, manufacturing and services.
Under Lula, who took office in 2003, Brazil improved its macroeconomic stability, built foreign reserves, reduced its debt, maintained inflation under control and enacted fiscally responsible policies.
Although Brazil took a hit from the recession, when demand for its commodity exports ebbed, it was also one of the first emerging markets to enjoy a recovery, with GDP growth of about 7.5 percent in 2010, the highest annual growth rate since 1986.
In the fourth quarter of 2010, Brazil’s economy slowed when higher interest rates and other measures aimed at reining in lending raised questions about growth prospects in 2011. Brazil’s Finance Minister Guido Mantega dismissed concerns about a “hard landing,” saying the government expects growth to slow only modestly, to 4 to 5 percent this year.
Brazil’s trade surplus rose to $1.9 billion last month from $420 million in January, as exports grew 37.2 percent year-over-year and 9.9 percent month-to-month. Imports also accelerated, growing 31.6 percent year-over-year in February. Low unemployment and a strong real are driving demand for imports.
Like Brazil, Chile has made China the focal point of its export strategy, and its largest single export market, receiving 25 percent of its total sales. By far the most important commodity is copper, Chile’s largest export. Although about one-third of China’s copper imports came from Chile in 2010, Chile hasn’t been able to expand its presence in China into other product areas. Chile’s blessing is also its curse: When copper prices rise, the country does extremely well. But when they collapse, Chile becomes vulnerable.
Chile’s dependence on copper cost the country dearly in 2009. Its total volume of global trade declined more than 20 percent because of weak demand for copper in China during the recession. Chile’s overall exports declined 19.3 percent, and its imports dropped 21.4 percent.
Global copper prices soared last year and have stuck. Prospects for this year are positive, with industrial output growing 4 percent in January, year-over-year, the fastest rate since last August. Economists surveyed by Bloomberg forecast 5.9 percent GDP growth, and the country continues to outpace most forecasts despite rising interest rates. Retail sales expanded 16 percent in January, year-over-year, and supermarket revenue increased 6.4 percent, the National Institute of Statistics reported.
Contact Alan M. Field at email@example.com.