Commodities boom spurs Latin American tradeBesides increased sales of its own products to its big northern neighbor, Latin America is also buying more goods from abroad. But a bust could be on the horizon.[email protected]
Commodities boom spurs trade
These are rosy times for Latin America's commodity-producing powerhouses.
Demand is high for products such as oil, natural gas, gold, iron ore and copper, which is driving up prices and boosting foreign reserves.
That's translating into expanding trade flows. Commerce between the United States and Latin America increased 14 percent for the first half of 2006, to $259.5 billion, according to Latin Business Chronicle, a website (www.latinbusinesschron icle.com) that recently analyzed U.S. Census data on trade.
Besides increased sales of its own products to its big northern neighbor, Latin America is also buying more goods from abroad.
Oil giant Venezuela, for instance, bought 35.9 percent more in U.S. products for the first six months of the year, an increase of $1.1 billion, according to Latin Business Chronicle.
Colombian imports increased 20 percent for the first five months of the year over 2005.
The Andean nation, whose biggest trading partner is the United States, followed by Mexico and China, bought more vehicles, auto parts and video recording products, according to government statistics.
The same scenario is occurring around the region, fueled by extra income from exports. And that, in turn, is improving the fortunes of the local trading community. Depending on the markets they serve, some South Florida importing-exporting firms are feeling the rising tide.
Latin America, for example, increased its imports of U.S. merchandise by 12.7 percent, to $156.8 billion, for the first half of 2006, while its exports to the United States grew by 16.1 percent, to $102.7 million, according to Latin Business Chronicle.
''Countries have more foreign currency, which allows them to import more goods,'' said Eric Farnsworth, vice president of the Council of the Americas in Washington, D.C.
George Gutiérrez, manager of Smith Logistics International, a Miami freight forwarding and custom brokerage firm, has noticed the uptick. He reports that shipments to Chile and Brazil are up about 10 to 15 percent this year.
''What has driven this is more ocean freight,'' said Gutiérrez, who typically sends industrial machinery and equipment to Chile and computer routers to Brazil.
Seaboard Marine in Miami has seen steady growth in freight bound for and originating in the Andean nations over the past year, said Bruce Brecheisen, vice president of the shipping line. ''In general, we've increased the capacity of our existing sailings,'' he said.
Other companies say they've seen a slide. Miami's Hemisphere Cargo, which relies on Ecuador as its principal freight forwarding client, has seen a 20 percent drop in trade this year.
''Computer goods are down. People are buying directly from China,'' said Felipe Proaño, the company president. ``We're thinking of doing more in Panama to compensate.''
But economic observers note that commodity booms inevitably go bust -- and that's the perennial Achilles heel of Latin America.
''The commodities boom is temporary,'' said Jerry Haar, management and international business professor at Florida International University. ``When commodity prices come down, you'll have social and civil unrest.''
With the notable exception of Chile, which has worked hard to diversify its economy away from reliance on copper with industries such as salmon and fresh produce, many of Latin America's economies still depend on one export sector.
Proaño, of Hemisphere Cargo, noted that commercial pacts between countries are part of the equation for stimulating trade.
''Free-trade agreements would definitely increase trade,'' he said. ``Rules would be standardized and the playing field leveled.''
Key to diversification is stimulating foreign investment in other sectors. But that won't happen until governments undertake reforms in areas such as labor rules, transparency and the judiciary, Haar said. Free trade is not enough on its own.
''Companies are looking for more than tariff rates,'' he said. ``Latin America has had two decades to get its act together and has failed.''
But with the commodity boom now in its fourth consecutive year, it can be hard to turn governments' attention to reforms that may be unpopular, since economies are growing without them.
The region's gross domestic product is expected to grow by a healthy 5 percent this year, with Venezuela and Argentina seeing the biggest growth, according to the Economic Commission for Latin America and the Caribbean.
''The short term looks pretty good. The mood is pretty upbeat, not only in terms of the business community but in the broader community,'' Farnsworth said. ``The question is one of sustainability for the midterm.''