The United Kingdom will face a 2.8 per cent negative growth rate in 2009, the worst economic performance since World War II (in fact, the British economy has already shrunk by 2.7 per cent since last April). In Spain, unemployment has reached 14 per cent, and the government is offering a “golden handshake” to recent immigrants to leave the country for three years. Ireland, so often held up as an example for the developing world because of its relentless tax-cut ting, is in dire straits, and Iceland is bankrupt.
In the United States, Dow Jones slipped below 8000 in the very week President Barack Obama took office, the automobile industry continues its downward spiral (Toyota has already displaced GM as the world’s largest automaker) and in one day in January, some leading companies announced shedding 72,000 jobs. In California, unemployment is just below 10 per cent, and the State faces a staggering deficit. In Canada, which lost 34,000 in December, Ontario, the nation’s industrial heartland (40 per cent of Canada’s GDP), is in trouble and looking for ways to renegotiate existing financial arrangements with Ottawa.
Projections indicate that the developed world will have a negative growth in 2009. What about Latin America?
The standard line is that “when the United States sneezes, Latin America catches a cold.” And that was exactly what happened in the past. The Great Depression had a devastating effect on Latin America — so much so that in the late 1930s and early 1940s, it begot the import-substitution-industrialisation (ISI) strategy, as governments realised that in times of global slowdowns they could not be left at the mercy of having enough hard currency to buy essential goods from the industrialised North; they needed some installed capacity of their own.
Something similar happened in the early 1980s when rising interest rates in the U.S. pushed the region into its worst debt crisis and a “lost decade,” in which countries like Chile saw 14 per cent negative growth in 1982 and unemployment rates of 30 to 35 per cent for several years. According to the conventional wisdom, Latin American economies should be in the doldrums, with the Northern recessionary waves hitting Southern shores with a multiplier effect leading to an even deeper economic downturn there.
Yet, this isn’t happening. Yes, this is a global recession and the region has not been spared. Growth will be cut in half; commodity prices have dropped and so have export volumes, thus affecting regional exports which reached a record $902 billion in 2008. International credit has tightened, and some projected FDI is not materialising. Remittances to the region, which also reached a record ($67 billion) in 2008, will take a hit.
After six consecutive years of over 4 per cent economic growth rates, the region is projected to grow 1.9 per cent in 2009. Unemployment, at 7.5 per cent in 2008, is projected to rise to between 7.8 and 8.1 per cent. Whatever else it may be, this is not a recession.
Countries like Peru, the star economic performer over the past few years, may grow as much as 5 per cent in 2009, with smaller economies like Cuba, Panama and Uruguay clocking 4 per cent or more. And the larger economies like Argentina (2.6 per cent), Brazil (2.1 per cent), Chile (2 per cent) and Venezuela (3 per cent) should perform quite respectably. In fact, South America as a whole, according to ECLAC, will grow at 2.4 per cent. It is Mexico (0.5 per cent) and many Central American and Caribbean nations that will be especially affected by the drop in tourism and in remittances and by lower demand in the U.S. market.
This does not mean that if the financial meltdown continues to wreak havoc on the North and the economic wreckage is extended over time, it will not eventually have a greater impact in Latin America. My point is a different one. For the first time in a century, Latin America has managed, if not totally, to “decouple,” at least to partially “cushion” itself from the seismic waves of economic turmoil in the U.S. and Europe, markets on which it traditionally depended. The fact that several countries from the region (Brazil, Mexico and Colombia) are placing bonds in international markets in these difficult times speaks for itself.
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