Most Latin American economies are on the rebound

The construction industry here in Lima is booming, middle-class residents are once again snapping up new apartments in Rio de Janeiro and software companies in Santiago, Chile, are expanding.

A year after the global financial crisis exploded, most Latin American countries are putting the tough times in the rearview mirror during the final three months of 2009. Brazil, the region’s giant and the world’s ninth largest economy, is leading the way, along with such other market-friendly countries as Peru, Chile, Colombia, Uruguay and Panama.

But a rising tide is not lifting all boats. The slow economic recovery in the United States is holding back Mexico and most Central American nations, with drug violence and swine flu also battering Mexico.

Venezuela, Ecuador, Nicaragua, Bolivia and Argentina are lagging – in part because their leftist populist leaders have scared away investors and unsettled consumers with policies that have included nationalizing companies or private assets.

Despite the fledgling signs of recovery, the World Bank reports the net losers include the eight million Latin Americans who have been forced into poverty and the other five million who would have left poverty but for the difficult economic times. Overall, about 560 million people live in Latin America and 180 million of them were below the poverty line at the beginning of 2009, the World Bank says.

Strategies on how businesses and countries should tackle emerging challenges while maintaining political stability in the wake of the global financial crisis will be prime topics of discussion at this week’s 13th annual Americas Conference at the Biltmore Hotel in Coral Gables. The Miami Herald – along with Florida International University, the World Bank and the state of Florida – is sponsoring the event this Tuesday and Wednesday.

Meanwhile, it’s worth remembering that the global economic crash ended Latin America’s five best years since the 1950s.

Before the crisis hit, the Economic Commission for Latin America and the Caribbean, a Santiago-based United Nations Agency, expected Latin America to grow by 4 percent in 2009. Now it projects a 2 percent contraction.

Indicating its faith in a turnaround, however, the group is now forecasting a 3.1 percent growth rate in 2010 for Latin America.

As economists survey the past year and look ahead, they can’t help but marvel at how Latin American countries, after years of being lectured to get their fiscal houses in order, mostly managed to swerve around the global economic pileup precisely because they followed that advice.

With exceptions in a couple countries, “there were no bank runs, no inflation spikes, no capital flight, no large devaluation, no big migration,” said Marcelo Giugale, an economist who specializes in Latin America at the World Bank. “You didn’t see the traditional symptoms of crisis” that sank the region’s economies previously.

Jay Bryson, a global economist for Wells Fargo Securities in Charlotte, N.C., pinpointed a major reason: “Latin American countries didn’t get all leveraged up like the United States and Europe. You don’t have households massively in debt.”

Bryson and other economists said that most Latin American countries saved money, found new export markets and kept inflation low during the good years. This left them better prepared for the downturn.

Eduardo Lora, an economist at the Inter-American Development Bank, provided some numbers that highlight the improved climate for Latin America.

Foreign reserves more than doubled from $160 billion in 2003 to $430 billion at the end of 2008, Lora said. Total public debt as a percentage of gross domestic product for the region’s seven biggest economies fell from 52 percent in 2003 to 27 percent in 2008, he added.

Brazil is the shining example for getting it right, although the picture certainly didn’t look rosy a year ago. Brazil, after all, had lurched from economic crisis to economic crisis over the previous 25 years. Hyperinflation racked the country in the 1980s and early 1990s. Economic woes in other developing countries slammed Brazil later in the 1990s.

So it was almost expected that sales of cars, new apartments and home appliances plummeted last October, as did exports. Interest rates surged, and credit dried up for some industries. Soybean plantings fell, the stock market tanked and the value of Brazil’s currency, the real, sank 25 percent compared to the dollar.

But Brazil’s economy has come roaring back this year.

Paulo Levy, an economist at the Rio-based Institute of Applied Economic Research, said consumer-driven growth in the second half of 2009 will mean a slight gain in the economy this year. He’s very bullish for 2010, expecting a 5 percent growth rate.

“Brazil is recovering from the crisis quicker than originally expected, and growth will be higher than expected,” Levy said.

He credited nimble moves by the government of President Luiz Inacio Lula da Silva, which has cut taxes on sales of new cars and home appliances, made it cheaper for middle-income families to buy homes, increased the minimum wage and raised payments to the poor under the country’s heralded Bolsa Familia program.

“In our best-case scenario at the beginning of 2009, we were hoping that sales would equal those of 2008,” said Marcelo Vasconcelos, sales manager for Patrimovel, a Rio-based real estate firm. But he said that 2009 sales will surpass the 2008 mark.

Vasconcelos is working seven days a week to keep up with buyers. “The possibilities for 2010 are unlimited,” he said.

No sector better reflects Brazil’s turnaround than the car industry. After the bottom dropped out a year ago, new car sales rose by 2.7 percent through this August compared to the first eight months of 2008.

“Credit came back, interest rates went down to their lowest historical levels and the government reduced the federal (sales) tax,” said Rogelio Golfarb, the Sao Paulo-based director of corporate affairs and communication for Ford Motor Co. “We expect that the industry should grow by 5 percent in 2010” – the same amount Brazil’s overall economy is expected to grow.

In Peru, which never slid into recession, new apartment buildings are going up throughout Lima, businesses are continuing to turn desert into productive farmland along the coast and mining companies are spending freely again.

Fernando de la Flor, owner of a real estate investment company, said its local companies, rather than foreign firms, that are leading the charge. “It’s locals who are investing,” he said. “Peruvians are bringing their money back home. They want to hedge their international investments.”

At Agrokasa, a major vegetable exporter, president Jose Chlimper said that exports of the company’s asparagus, table grapes and avocados fetched 5 percent to 10 percent lower prices this year, but costs for freight and farming chemicals plummeted by 30 percent to 50 percent. Profits went up as a result.

Not only that, but the global crisis prompted Agrokasa to re-examine its operations and squeeze out the fat. “We’re a more agile company now,” Chlimper said. “I’m investing and planting more acres.”

As with companies in Chile, Bolivia and elsewhere, Peru’s huge mining industry is also rebounding, thanks in no small measure to demand from China. “Every mining company group put investments on hold” a year ago, said Hans Flury, president of the Peruvian Mining Association. “Everyone was scared by the foreign financial crisis.”

Commodity prices plummeted across the board. Copper, for example, dropped to $1.43 per pound. It has now bounced back up to around $3 per pound. Mining companies in Peru are now planning $30 billion in investments over the next five years, Flury said.

“Everyone is thinking of moving forward and doing more exploration,” he said. That’s hardly the case in Argentina, where the economy is slowing down as a politically weakened President Cristina Fernandez de Kirchner continues to mull over her plans for the economy following a major loss in June’s mid-term elections.

“No one can plan for the long-term,” said Jorge Fantin, a business professor at San Andres University in Buenos Aires. “A lot of decisions and investments are being delayed because of political uncertainty.”

The situation appears even worse in Venezuela, and only partly because of the sharp drop in oil prices.

Venezuela suffers from the highest inflation rate in Latin America (30 percent), businesses have stopped investing, President Hugo Chavez is intervening more and more in the economy and the country’s currency is worth more than twice as much on the black market as it is at the official rate, said Orlando Ochoa, a Caracas-based economist.

He expects the economy to contract by 2 percent in 2009 and show no growth in 2010. “Higher oil prices will be a relief, but this won’t solve the problems of inflation, the budget deficit and recession,” Ochoa said. “You’ll see Latin America growing in 2010, and Venezuela stuck with the same problems.”

Deborah Riner is somewhat more optimistic about a recovery in Mexico, which is suffering through the worst year of any Latin America country. Riner, chief economist for the American Chamber of Commerce of Mexico, expects the country’s economy to shrink by 7.4 percent in 2009 and show a weak 2.6 percent growth rate in 2010.

“Things aren’t as bad as they used to be,” was the best that Riner could say from Mexico City. One growth industry in Mexico: Private security firms to protect beleaguered companies and individuals.

Rafael Amiel, the Philadelphia-based regional managing director for Latin America for IHS Global Insight, said he doesn’t expect Mexico’s economy to return to its pre-crisis size until the end of 2011.

A warning sign for Latin America’s economic future: The World Bank’s recent “Doing Business” report showed that Asia, Africa and Eastern Europe are moving quicker to clear away obstacles for investors.

“It’s pathetic,” said Jerry Haar, a Florida International University professor who specializes in international business. “The region is not competing.”

Haar does take heart from the development of emerging software companies in places such as Campinas, Brazil; Cordoba, Argentina; Guatemala City; and Santiago.

Studio C, founded by two Guatemalans, has done computer animation work for such Hollywood movies as Fast and Furious and The Chronicles of Narnia.

“We are growing, opening different studios throughout Latin America, giving the opportunity to eager talent to be involved in the major features production industry,” said Ramiro Arguello, one of the company’s co-founders.

Polaris Software Lab, a company based in India that provides software applications to financial companies, is expanding its labor force in Santiago from 25 workers to more than 100 by next June. “Santiago offers qualified professionals at competitive (salaries),” said Cristian Basauri, the company’s senior vice president for Latin America.