Unable to Escape Global Crisis, South American Nations Take Financial Action
Wednesday, December 10, 2008
RIO DE JANEIRO, Dec. 9 -- It began with denial, as the leaders of several South American countries insisted their high-stepping economies could weave their way through the financial troubles shaking the United States.
Then there was anger that the world's financial system was being run by apparent gamblers from the same powerful countries that have always lectured South America on the need to be prudent and honest.
And now, in more and more countries in this region, there is acceptance. And government action. On Monday, Alan García, the Peruvian president who was talking about a "crisis of prosperity" as recently as last month, announced a $3.4 billion bailout package to help a national economy that has been among the hemisphere's fastest growing in recent years.
Four days earlier, Argentine President Cristina Fernández de Kirchner announced a $3.8 billion package of low-cost loans to increase consumer demand and help exporters, paid for with money from the country's newly nationalized pension system. Brazil, the region's largest economy, has spent $3.5 billion to help its struggling auto sector as its stock market and currency have crashed.
"It's been slow, but I think there's a growing awareness that the region is entering a new era and the last five or six years have been sort of an anomaly," said Michael Shifter, vice president for policy at the Inter-American Dialogue in Washington. "I think in the next couple years things will be a lot tighter. There might be some regrets they didn't take more advantage of these boom times."
As the prices of oil, minerals and agricultural products have dropped -- the backbones of many Latin American economies -- credit has become harder to secure and demand has abated. Several of Latin America's most promising economies are now predicting sharply lower growth rates. Ecuador is considering defaulting on $3.8 billion in foreign debt.
In Venezuela, where the price of oil has fallen to less than $35 a barrel from $140 in July, President Hugo Chávez has said his government would cut the budget, including officials' salaries, in response to the crisis.
Chávez has also pushed for a production cut among OPEC members to boost oil prices, which could undermine already weak neighboring economies. A consultancy based in Washington, PFC Energy, said Venezuela needs to have oil prices above $95 a barrel to maintain its economic stability.
Some political analysts predict the Argentine measures -- including consumer loans for appliances and new cars, and a decrease in export taxes on wheat and corn -- may not improve the gloomy forecasts. Gross domestic product is projected to contract by more than 1 percent next year, according to some estimates, after five consecutive years of growing by more than 8 percent. Fernández de Kirchner told a group of business leaders last week, "Perhaps we Argentines are going to have to suffer a part of this tragedy."
Argentina's trouble securing loans to boost government spending has forced it to resort to taking money from the once-private pension system, which amounts to "redirecting money that was already in the financial system," said Federico Thomsen, a political and economic analyst in Buenos Aires.
"It serves political purposes for the government to show they are doing something during the crisis, but the truth is, I think the Argentine government cannot do too much about it," he said. "The reason why governments try to build up trust and credit in the good times is so that during the bad times they have money. Argentina has not done that, and of course, the government cannot admit that it has no tools today because of its own shortcomings."
In Peru, García had been optimistic about Peru's ability to maintain its rapid growth through the financial crisis.