When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

Economy

Why Latin America Won't Escape Global Economic Crisis This Time Around

Latin America fared surprisingly well during the 2008-2009 financial crisis, thanks in part to continued demand from China for the region’s commodities. But as Europe teeters on the edge of collapse, top South American economies are much more exposed now.

São Paulo, Brazil (Rafael SG)
São Paulo, Brazil (Rafael SG)
Rodrigo Lara Serrano

SANTIAGO -- As the rest of the world watches Europe teeter on the brink of bankruptcy, many are looking again to Latin America as an oasis of growth and consumption. But unlike 2008, the last time the region defied expectations in the face of global misery, two new factors have appeared on the horizon. Fiscal policy in several nations is not as strong as it was before, and China's desire to limit growth could pose a challenge to Latin American economies.

"There are two scenarios that could happen in Latin America as a result of the global situation, and they are both bad – one worse than the other," says Liliana Rojas Suárez, an economist and president of the Latin American Financial Affairs Committee in Washington. First, if the European banking system does not go into default or there are no bankruptcies, there will continue to be little global demand, which is not good for Latin America. In this case, however, "Latin America will continue to benefit because its credit will continue to rise rapidly and its banking system will stay strong because it is well capitalized."

But that is the less likely scenario. In the second scenario, Europe will explode, and the countries of the region will break up depending on the "the degree of exposure to the international crisis and their ability to implement measures to deal with the shock."

The immediate impact would be greater in those countries with more open trade, and especially those that have considerable openness in their financial policies. "Those will be the ones that will suffer most from the cuts in credit lines that go to finance activities such as foreign trade," says Rojas Suárez.

Expecting a quick hit

A European collapse, beyond the survival of the euro, would also cause a drop in the demand for Latin American products and, after an initial shock, increase cheap exports from the European Union.

Michael Pettis, a senior associate at the Carnegie Endowment for International Peace and a professor of finance at Guanghua School of Management at Beijing University, believes the impact on Latin America "could happen very quickly, especially if it accompanied by capital flight." Pettis predicts a trench warfare scene, with a dramatic increase of trade and exchange protectionism. "In fact, this is already happening," he says.

Out of all the region's countries, Brazil has acted the most to introduce preventive measures. The unexpected drop in interest rates is still brewing controversy, but it should not hide the fact that President Dilma Rousseff has had fewer tools to work with than her predecessor, Luiz Inácio Lula da Silva, had in 2008.

Suárez Rojas believes the region acted correctly during the 2008 crisis by increasing deficits and dropping interest rates. "Later, interest rates rose to normal levels and fiscal deficits were adjusted," she adds. The difference lies between those who "acted quickly and did it well, like Peru and Chile, and others who put it off for a long time."

Among those in the latter category are Brazil and Colombia, which found themselves with high fiscal deficits as the current crisis escalated.

Argentina's case is unique because of its financial isolation. "Compared to Brazil, the country is in a different situation. And as it was in the 1990s, it is now more exposed in terms of the real economy than at the financial level," says Victoria Giarrizo of the Center for Regional and Experimental Economic Studies.

Giarrizo believes Argentina is in a more advantageous situation. Standing in the country's favor is the de-dollarization of its debts and – despite certain level of uncertainty – its trade relations with Brazil.

But can Brazil maintain the state's capacity to ignite growth? Pettis believes the country's policy needs a lot of fine tuning. "In all past cases where you have highly centralized investment that drives ‘miracle" growth -- such as Brazil in the past decade, but also in Japan in the 1980s, the USSR in 1950s and 1960s, Germany in the 1930s, and so on – any long period of rapid growth has been followed by a debt crisis. This is the risk for Brazil," he says.

Read more from AméricaEconomía in Spanish

Photo - Rafael SG

You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Stories from the best international journalists.
  • Insights from the widest range of perspectives, languages and countries
Already a subscriber? Log in

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
FOCUS: Russia-Ukraine War

Searching For Marianna, A Pregnant Doctor From Mariupol Held Captive By The Russians

We’ve heard about the plight of the soldiers-turned-prisoners from Mariupol. Here are some traces of the disturbing fate of a young female doctor who’s been taken away.

A paper dove reads "Mariupol" at a shelter for displaced children in Uzhhorod, western Ukraine.

Paweł Smoleński

"Wait for me, because I will return…"

Marianna Mamonova wrote these words to her family, among the text messages and short phone calls that are the only remaining fragments used to piece together her recent past. We also have a photo of her, posted on Russian websites, where she looks into the lens, gaunt and exhausted, signed with a number like a concentration camp prisoner.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

Sign up to our free daily newsletter.

Until the Russian-Ukrainian war, Mamonova’s biography was available to anyone who wanted to know. She was born in 1991, studied at the Ternopil Medical University, and later at the Kyiv Military Academy. After completing her studies, she was sent to work in the coastal city of Berdiansk. Her mother says that this is where her daughter's dream came true: She’d always wanted to be a military doctor, and worked in Berdiansk for three years, receiving the rank of officer in the Ukrainian army.

Beginning in 2014, she’d worked stints as a front-line doctor in the Donbas region, and when Russia invaded Ukraine in February she went to war again. This time in Mariupol.

Keep reading...Show less

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Stories from the best international journalists.
  • Insights from the widest range of perspectives, languages and countries
Already a subscriber? Log in
Writing contest - My pandemic story
THE LATEST
FOCUS
TRENDING TOPICS

Central to the tragic absurdity of this war is the question of language. Vladimir Putin has repeated that protecting ethnic Russians and the Russian-speaking populations of Ukraine was a driving motivation for his invasion.

Yet one month on, a quick look at the map shows that many of the worst-hit cities are those where Russian is the predominant language: Kharkiv, Odesa, Kherson.

Watch VideoShow less
MOST READ