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New consumer class powering economic growth across South America

From Paraguay to Chile and Brazil to Peru, a growing middle class is powering economic growth that is helping to lead the worldwide recovery. And the changes can be seen acutely in Argentina.

Economies buckled but quickly recovered, said Augusto de la Torre, the World Bank's chief Latin America economist.

"Latin Americans used to say, correctly I think, that whenever the U.S. caught a cold, we would get pneumonia," de la Torre said. "This time, the U.S. really caught pneumonia, or something even worse, so we thought we would be really clobbered."

Instead, the region has grown so rapidly since a 2009 downturn that economists worry about overheated economies fueling higher inflation, pushing up imports and leading to account deficits.

Last year, output in South America topped 6.6 percent, according to a preliminary report by the United Nations' Economic Commission for Latin America and the Caribbean. The only country to register negative growth on the continent, Venezuela, is hamstrung by state seizures of companies and is increasingly reliant on oil sales to the United States.

Argentina, where the government says growth hit 9.1 percent last year, is different from neighboring countries, which have implemented Wall Street-friendly policies.

Its $95 billion default in 2001 locked Argentina out of international credit markets. The government's free-spending ways under President Cristina Fernandez de Kirchner have drawn criticism from international credit rating agencies. Prosecutors have also investigated allegations that the government doctors inflation figures.

Still, Argentina has posted solid growth since 2003, fueled by exports to China. Poverty fell from 45 percent in 2002, after an economic collapse wiped out savings, to 11.3 percent last year.

Booming production

The fruits of that turnaround are apparent here in Tierra del Fuego.

Settled to counter Argentine fears of a Chilean expansion, the island is now home to 57 companies that produced 5 million cellphones last year, up from 400,000 in 2009.

New tax incentives for companies have created thousands of jobs as factories also produce computers and, in a few weeks, gear up to churn out electronic tablets. All the goods are purchased by Argentines, who can now buy on 36-month payment plans that were unheard of three years ago.

Among those who have been doing business here the longest is Ruben Chernajovsky.

Grandson of a Ukrainian immigrant, he started out selling imported almonds in Buenos Aires when he was 20. Now he owns Newsan S.A., which has four plants in Ushuaia and will soon open a fifth.

He remembers the lean years, particularly a decade ago, when he was forced to close down and move to Miami. Today, his factories make motherboards for electronic goods, as well as computers, LCDs, microwave ovens and telephones. His managers expect to employ 2,000 people by June, up from about 1,500 now.

"What you see is growth across the consumer class," Chernajovsky said. "It is not just the upper middle class buying. We are talking about people at all levels. We're talking about hundreds of thousands of products."

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