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LATIN AMERICA'S GREAT ECONOMIC DIVIDE

Aruba, June, 16, 2014 - There’s a rift in Latin America that is neatly defined by two oceans. According to the International Monetary Fund’s latest economic forecasts, the Atlantic-facing countries of Venezuela, Brazil, and Argentina, the largest members of the Mercosur customs union, will grow at an average rate of 0.6 percent this year; while Chile, Peru, Colombia, and Mexico—which make up the Pacific Alliance—will expand by 4.2 percent.

The divide has little to do with western Latin America’s orientation toward a dynamic Asia or the eastern countries’ exposure to a stagnant Europe. Blessed with abundant natural resources and an almost 200-million-strong consumer market, Brazil remains the regional economic giant. And Venezuela commands some of the largest petroleum reserves in the world. Yet at the end of a decade-long boom driven by cheap money and strong commodity prices, growth in both countries is lagging behind that of many of their neighbors. The standouts are those that, despite a more challenging global environment, have not reverted to the age-old “isms” (think statism and protectionism). “Some countries partied and splurged during the boom years; others did their homework,” says Ramón Aracena, chief Latin America economist at the Washington-based Institute of International Finance. “Latin America is no longer a unified bloc with a synchronized business cycle.”

Atlantic countries spent more while saving less. In Brazil, government spending averaged 40 percent of gross domestic product from 2010 to 2013, compared with an average of 27.5 percent for Chile, Colombia, Mexico, and Peru, according to an April report by Goldman Sachs (GS). Domestic savings are 16.4 percent of GDP in Brazil, compared with an average of 20.8 percent in the Pacific nations.

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Debt-rating companies are taking note. Moody’s Investors Service (MCO) raised Mexico’s credit rating to Aaa in February, four levels above junk. A month later, Standard & Poor’s (MHFI) downgraded Brazil to BBB-, the lowest investment grade. Mexico’s economy will expand 3 percent this year, according to IMF forecasts, outpacing Brazil’s 1.8 percent. “Money follows growth,” says Ricardo Espírito Santo, president of the Brazilian unit of Espírito Santo Investment Bank. The Portuguese lender is interested in financing projects in Mexico, which is in the process of opening its energy industry to foreign investment. That country “is doing well,” Espírito Santo says, “so we’re focusing our activities there.”

Read more/ Source: http://www.businessweek.com/articles/2014-06-05/latin-americas-economic-divide-east-vs-dot-west

 

 

 

By orbitalnets.com