Adios To The Latin American Fat Years

As oil and commodities prices drop and the U.S. dollar is revalued, Latin American economies must prepare for life with less hard cash.

In Buenos Aires.
In Buenos Aires.
Pedro Videla


SANTIAGO â€" It's a difficult moment for Latin American economies. After a decade of growth, favorable conditions are disappearing and growth forecasts are no longer so bright. The International Monetary Fund (IMF)"s regional growth forecast for 2015 is just 0.9%, which, excepting 2009's great recession, is the lowest rate since 2002.

There are differences between countries, of course. Northern states with greater ties to the United States are benefiting from its economic recovery, while the southern economies are being hit by the slowdown of China's economy. For more than a decade, China fueled a rising demand for raw materials, increasing investments in and exports by countries supplying them. It was like manna falling straight onto Latin America.

But this wasn't the only positive external factor. The region had access to cheap and plentiful credit in dollars, thanks to the U.S. Federal Reserve's expansive monetary policies. The region's central banks didn't allow the abundance of dollars to raise the price of their currencies, and responded by accumulating reserve currencies and increasing the local currency supply. This abundance of liquidity meant access to cheaper credit for national companies and families, which meant more consumption and investment.

Good times gone

But now Latin America could face a dollar shock, or an increase in Fed interest rates that would end the long period of abundant liquidity that's been so beneficial to the region. If so, it would prompt a dangerous reversal of capital flows that would depreciate local currencies and make it more difficult for countries to pay external debts.

The forecasts for various regional countries depend to a great extent on external shocks. Mexico and most of the economies of Central America and the Caribbean, being tied to the U.S. economy, will benefit from its renewed dynamism. These economies will also benefit from the price declines of raw materials, especially oil. But for South America the new context is unfavorable because the region's ties with the United States are modest and because China's slowing economy will impact demand for commodities. Countries most directly dependent on Chinese demand are Chile, Brazil, Peru and Uruguay, which send between 15% and 25% of their exports to the Asian superpower.

The price of crude oil also began to fall dramatically in mid-2014, primarily because of excess supply. The economies most affected by that were Venezuela, Bolivia, Ecuador and Colombia, which have seen a worsening of their trading terms and comparative prices of imports and exports.

Brazil, the region's biggest economy and the world's seventh, is also troubled. Its GDP is expected to fall 1% this year, thanks to external stresses and political instability at home exacerbated by the Petrobas corruption scandals. Add to this the social, political and economic chaos of Argentina, and we can expect South America's three primary economies (Brazil, Argentina and Venezuela) to shrink this year. On a positive note, Colombia, Chile and Peru have more room to maneuver with their economic policies in response to negative outside conditions.

Authorities across Latin America should closely watch the risks in their financial sectors. After years of expanding credit, abundant capital and borrowing by companies on international markets, the early readjustment of U.S. monetary policy and a recovering dollar will put pressure on anyone with uncovered dollar debts or obligations of one form or another. Central banks must ensure that inflation remains within set objectives and intervene if needed to contain excessive volatility in exchange rates.

In this context, it would not seem advisable to try and counter worsening external conditions with macroeconomic stimuli at home. To establish solid bases for growth, states must focus on resolving structural weaknesses: improve institutions and education, assure equal opportunities and nurture the business environment.

Many Latin American states have improved their macroeconomic management and stabilized their economies, but very few have made decisive progress with structural reforms. Which is why Latin America grows whenever manna falls from heaven but remains the region with the most volatile GDP growth rates. They should gird themselves because, for now, the manna has gone.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money but the simplest of errors exposed the scam and limited the damage to investors.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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