Latin America: markets react to financial crisis

Latin American currencies rose dramatically on Sept. 19 after the US government proposed an unprecedented $700 billion bailout of US financial companies holding bad debt. The Brazilian real went up 3.5% to 1.8298 to the US dollar, its biggest gain in six years, while the Colombian peso jumped 6.7% to 2,050.9 per dollar—the peso’s biggest advance in at least 13 years, according to the Bloomberg news service. The rise in the currencies followed four days of equally dramatic declines as markets reacted to a financial crisis in the US that included the collapse of the Lehman Brothers Holdings Inc. investment firm and a $85 billion bailout of the American International Group Inc. (AIG) insurance company. The real fell 4% from Sept. 15 to Sept. 18, while in Mexico City, stock prices on the Bolsa Mexicana de Valores (BMV) fell 8.3% between Sept. 16 and Sept. 17. (Bloomberg, Sept. 19; La Jornada, Mexico, Sept. 18)

The ups and downs in Latin American markets were in line with turmoil in markets around the world. In contrast to other financial crises over the past 15 years, this time the crisis started in the US and other rich countries, not in the emerging markets. In the current situation, the emerging markets, especially in Asia, represent the only areas in the world with strong growth. The US reacted to previous crises by demanding that countries like Mexico and Argentina impose the neoliberal economic policies widely known as the “Washington Consensus.” Now the situation is reversed. Walter Molano, an emerging markets analyst for the Connecticut-based BCP Securities investment firm, called the US bailout plan “incompetent” and compared it to plans made in Argentina in the past. The US “needs something like the Washington Consensus for Latin America,” he said. (Clarín, Buenos Aires, Sept. 21)

The US financial crisis is expected to have a strong effect on Mexico, whose economy is closely linked to the US economy. Appearing before Mexcian congressional committees on Sept. 17, Finance and Public Credit Secretary Agustín Carstens Carstens called the US financial crisis “the worst in a half century” and predicted that the Mexican economy wouldn’t resume significant growth until the last quarter of 2009. Analysts noted that Mexico will be especially affected by the decline in the US building industry, since hundreds of thousands of Mexican immigrants work in construction and supplement the Mexican economy with remittances to their relatives. (LJ, Sept. 17, , Sept. 18)

In recent years most South American economies have tried to reduce their dependence on US investments and trade. In La Paz on Sept. 18, representatives of the Bolivian state petroleum company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), signed an agreement with the Russian Gazprom company and France’s Total for exploration for natural gas in Bolivia‘s southeast region. The energy project, the country’s largest since the nationalization of the petroleum industry in 2006, will involve an investment of $4.5 billion. President Evo Morales said that there was an understanding that cooperation will extend beyond exploration and exploitation to include industrialization. (LJ, Sept. 19)

From Weekly News Update on the Americas, Sept. 21

See our last post on the econocataclysm.