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Latin America: Avoiding the Hangover

Latin America needs to improve its infrastructure, education and efficiency, experts say.


Even in the midst of the sunny outlook for Latin America, the risk of crisis lingers on the horizon, experts warned during a regional conference on the region.
“Latin America really is booming; everyone wants to be in Latin America,” said Walter Molano, the head of economic and financial research at BCP Securities in Greenwich, Connecticut.

But Molano, a veteran financial analysts looking at the region, said Latin America must step up its efforts to compete globally. “Latin America still hasn’t done enough to modernize its infrastructure, to improve its education, to improve its efficiency,” Molano said. “If it doesn’t, this is going to be a great party with a really bad hangover.”

Speaking at the conference Forecast 2011: Economic and Political Risk Scenarios for Latin America, Molano said the region had very good economic numbers going into the global financial crisis.


Today, many countries in the region face a current account shortfall, fiscal deficits or the erosion of fiscal balances, overvalued currencies and in some cases rising consumer debt, Molano told the January 28 conference, hosted by the University of Miami’s Center for Hemispheric Policy.

The financial analyst said the greatest potential for economic risk was Brazil, where he warned the country needed to address its severe infrastructure deficit, especially since it will host the World Cup in 2014 and the Summer Olympics in 2016.

Colombia and Peru are really the stars of Latin America right now – call it El Dorado,” he said. He said that the new government of President Juan Manuel Santos was focusing on reparations and restitutions in an effort to improve relations with neighbors and within Colombia, but did face the risk of an overvalued currency and had many infrastructure needs.

He called Peru a “very well-managed country,” which had successfully diversified its economy and exports. Molano called Peru “the California” of South America and said it had a surprisingly good infrastructure. In Chile, for instance, he said despite a good infrastructure in Santiago, the rest of the country needed better transportation.


Molano called Venezuela “a failed state,” but added he saw no solution to the polarizing presence of President Hugo Chávez. “Chávez is a reflection of some of the problems that lie below the surface in Latin America,” he said, adding the region needs to address the infrastructure, education and need to improve social mobility – the result of conservative societies – or face more Chávez’s around the region.

This is a very big challenge, he said. “The conservatism is something that has been embedded in the region for 400 years.”

Molano was echoed by Cynthia Arnson, director of the Latin American Program at the Woodrow Wilson International Center for Scholars in Washington. Arnson outlined recent regional opinion polls, which showed that support for democracy was at one of the highest levels in decades. But Arnson noted that the region was not uniform. Mexico, Central America and the Caribbean were not sharing the same “rosy picture” – high economic growth numbers – as South America. She also noted that Peru scores the lowest in the region, with high levels of dissatisfaction with the system. “There are extreme vulnerabilities in the region,” Arnson said, adding that populism is a “reflection of profound problems,” especially the need for more social and economic inclusion.

Kathryn Rooney Vera, senior economist at Bulltick Capital Markets in Miami, said that Brazil was facing the growing imbalances in the current account deficit, set to reach some $64 billion this year, with risks of rising inflation and appreciation of the Brazilian currency. “The central bank has been aggressively intervening,” said Rooney Vera, adding that she expected investors to react at some point to “this hostile, anti-investment flow environment.”


Alfredo Thorne, the head of global markets for Grupo Financiero Banorte, said that Mexico was experiencing a strong rebound and had been gaining market share from China in the U.S. export market. The country was especially strong in advanced technology products.

Mexico was moving in the opposite direction from Latin America because of its close economic ties with the United States, Thorne said. “Mexico has moved away from Latin America,” he said. “It is not very simple to compare Mexico and Brazil."

Richard Feinberg, the director of the Asia Pacific Economic Cooperation Study Center at the University of California San Diego, said that he was concerned that President Barack Obama referred to approving the free-trade agreement with South Korea during his recent State of the Union but made only passing reference to trade and investment agreements with Colombia and Panama. “If I were the Colombians, I would say we are being left behind,” Feinberg said.


The former foreign minister of Chile, Alejandro Foxley, set the tone for the conference by calling for fewer meetings and treaties and more efforts to boost productivity and build a working infrastructure in the region, such as constructing roads to link the Atlantic and the Pacific oceans.

He also warned of political risks. “If we really want to be taken seriously by the rest of the world, and we really want to join the club of the advanced economies … I would think that there is no substitute for representative democracy,” said Foxley, now the president of the Corporación de Estudios para Latinoamérica in Santiago

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