Economic Developments - September 2018

The UN Economic Commission for Latin America and the Caribbean (ECLAC) in its report released on 5th July revealed that foreign direct investment (FDI) in LAC has been falling since 2011. In 2017 at $ 161.673 billion dollars, it was down 3.6% from 2016. The decline is attributed to lower prices for basic export products, which have significantly reduced investment in extractive industries, and to the economic recession experienced in 2015 and 2016, mainly in Brazil. Though the region resumed growth (1.3% of GDP) and the prices of oil and metals picked up, it was not enough. The main victims were south American countries. In Central America, FDI rose for the eighth straight year (to $13.083 billion dollars), with a particularly notable increase in Panama, which reached $ 6.066 billion dollars. In the Caribbean, flows grew 20 percent to $ 5.835 billion dollars, 60 percent of which went to the Dominican Republic. FDI outflows from the region’s countries fell more sharply than inflows and totalled just $ 23.416 billion dollars in 2017.

In August ECLAC reduced its growth estimates for LAC from 2.2 percent to 1.5 percent given the “complex global environment” and trade tensions between the United States, China and other nations. South America is expected to grow 1.2 percent in 2018, while Central America may grow 3.4 percent, and the Caribbean 1.7 percent. Brazil and Mexico, the two largest economies in Latin America, are expected to grow 1.6 percent and 2.2 percent, respectively. On the other hand, Venezuela’s GDP is expected to fall by 12 percent, while Argentina’s economy may shrink 0.3 percent.

Argentina hosted the G-20 finance ministers late July, overshadowed by US tariff threats and President Donald Trump’s belligerence. Latin America is turning to the EU and others, and within the region, to reduce trade barriers. Mexico advanced the renegotiation of its 2000 agreement with EU in April 2018. Mercosur (Brazil, Argentina, Uruguay, and Paraguay) revived an EU agreement stalled for almost two decades. It has started talks with Canada, reached out to Singapore, New Zealand and Australia, is eyeing South Korea and possibly China. It is also discussing amplification of the India-Mercosur Preferential Tariff Agreement of 2007, though talks are going slow. Mexico, Peru, and Chile were founding partners of the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership after the U.S. withdrawal, which Colombia is keen to join. Panama has begun negotiations with China. On 24th July, Presidents of the Pacific Alliance and Mercosur countries, Latin America’s two most important trade blocs, signed a joint statement and an action plan to promote free trade and regional integration at a summit in Puerto Vallarta in Mexico, to establish “concrete measures to facilitate the trading of assets, promote the globalization of small and medium-sized companies, and the growth of the knowledge economy”.

On 28 August, Argentina raised its interest rate 15 percentage points to 60 percent, the highest in the world. At 40 to the dollar the Argentine peso had by then fallen to 49 percent this year. It has negotiated early disbursements from a 50-billion-dollar credit line from the IMF.

Venezuela issued the redenominated ‘Sovereign Bolivar’ – pegged to the cryptocurrency Petro - on 20 August. Instead of the earlier announced three zeroes, the new currency has five zeroes lopped off. This is the second redenomination of the Bolivar in a decade. Bank ATMs however are only releasing 10 SBs a day. President Maduro also hiked the minimum wage to 1800 SBs - around $ 30 - a month. Refugee flows out of Venezuela increased as economic misery became more acute.

 

 

September 12, 2018

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About the Author

Ambassador Deepak Bhojwani

Former Ambassador of India to Colombia, Venezuela and Cuba and Distinguished Fellow, Ananta Centre

Ambassador Deepak Bhojwani joined the Indian Foreign Service (IFS) in 1978. He retired in February 2012. During his career, he was accredited as Ambassador in seven Latin American countries, resident in Colombia, Venezuela and Cuba, concurrent in Ecuador, Costa Rica, Cuba and the Dominican Republic, and was Consul General in Sao Paulo. He served abroad in three Continents – Asia (Indonesia and Malaysia), Europe (Spain and Czech Republic) and Latin America.

In the Ministry of External Affairs, he served in the Divisions dealing with Administration; West Asia and North Africa; US and Canada; and had a brief stint at the United Nations.

Ambassador Bhojwani also served as Private Secretary to the Prime Minister of India, Mr P.V.Narasimha Rao for two years from 1994 to 1996, and as Special Assistant to the Minister of State for External Affairs and for Science and Technology, Mr K.R.Narayanan, from 1985 till 1988.

He writes extensively on Latin America and its relations with India. He has written a book published in 2015 titled ‘Latin America, the Caribbean and India: Promise and Challenge’.

He is currently a Consultant for Latin America and the Caribbean through his firm LATINDIA (www.latindia.in)

Ambassador Bhojwani also serves as Independent Director on the Board of Bharat Petroleum Corporation Ltd., one of the largest state oil and gas companies of India.

Since January 2017 he has been Country Manager and Director, Magotteaux Industries Pvt. Ltd.

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