Latin American stock markets plunged on Monday registering the worst numbers since February 2010. The Morgan Stanley Capital International (MSCI) Latin America—an index to measure equity market performance in emerging markets in the region—dropped 5.52 percent partly over concerns of the financial situation in the United States and Europe.
The downgrade from AAA to AA+ announced by Standard & Poor’s on Friday after the close of trading impacted the markets in Brazil, Chile, Colombia, Mexico, and Peru—the countries covered by the MSCI Latin America. Brazil’s Bovespa, the most dynamic market, lost 8.08 percent, the lowest since October 2008, amid international concern as well as domestic uncertainty over inflation and interest rates and a possible slowdown in consumer credit. Companies such as Petrobras (oil) and Vale (iron ore), two Brazilian giants, lost market value for up to 42 billion real ($26.5 billion).
Replying to suggestions that Brazil’s dominance as an emerging market is at stake, President Dilma Rousseff has said the country’s “fundamentals justified confidence in its prospects. Brazil’s foreign exchange reserves today are nearly $350 billion, up 80 percent since the global financial crisis in 2008.”
The Bolsa de Valores de Lima (BVL) dropped 7.09 percent, followed by Chile’s IPSA with 6.92 percent and Mexico’s Bolsa Mexicana de Valores (MBV), which fell 5.88 percent. While Colombia’s Bolsa de Valores (BVC) registered a decrease of 4.11 percent—and the 35 largest companies faced a market value decrease of 19.5 billion pesos ($10.7 million)—Argentina’s Merval suffered the most, plummeting 10.73 percent.
According to Nick Chamie, from RBC Capital Markets in Toronto, “Friday’s downgrade, along with recent weakness in the U.S. economic data and the ongoing European sovereign debt crisis, highlight the external risks currently facing emerging markets.”
On Tuesday, Colombian President Álvaro Uribe began a tour of seven Latin American countries to talk to leaders uneasy about a new U.S.-Colombia military pact that grants the United States access to seven military bases and is expected to increase the number of U.S. troops on Colombian soil. His meetings come ahead of an August 10 gathering in Ecuador of the Union of South American Nations, which Uribe will not attend.
The 10-year agreement, which caps the number of U.S. soldiers at 800—the maximum number permitted under an existing pact—was reached after Ecuadorian President Rafael Correa refused to renew the lease that allowed the United States to conduct operations from the base at Manta in Ecuador. That lease expired on July 17, 2009. President Uribe explains that the bases are not meant to threaten anyone but instead to combat drug trafficking and promote security in the region. Washington has had a military presence in Colombia since the launch of Plan Colombia in 1999.
Uribe has met with Presidents Alan García of Peru and Evo Morales of Bolivia and is scheduled to also meet with the leaders of Chile, Brazil, Argentina, Uruguay, and Paraguay. While García was welcoming and supportive, Morales insisted that he wouldn’t feel safe with U.S. troops in his country or in the region. The Colombian president will not meet with two of the pact’s fiercest critics—Presidents Hugo Chávez of Venezuela and Rafael Correa of Ecuador.
Mexican milk producers will go to the World Trade Organization (WTO) to demand that the U.S. raises the price of milk it exports to Mexico. Alvaro González Muñoz, the head of the Frente Nacional de Productores y Consumidores de Leche—a national organization of dairy industry stakeholders—said that thousands of Mexican milk producers have gone out of business in recent years because of the low prices of American milk, a result of U.S. government subsidies.
In Mexico, milk producers cannot afford to sell their product for less than five pesos ($0.38) per liter, but the price of U.S. milk imports range from 2.80 to 3.20 pesos ($0.21 to $0.24) per liter. For González Muñoz, bad economic times means that the minimum price of milk should not be lower than 5.50 pesos ($0.41) per liter for the milk industry to survive. The head of the Mexican milk industry admits that bringing the case before the WTO is going to be a long and complicated process, but sees it as necessary since other industries are being affected as well.
Last Wednesday, to much fanfare, the Organization of American States' (OAS) annual meeting of the hemisphere's foreign ministers issued a resolution calling for a dialogue to readmit Cuba to the region's premier diplomatic body. Despite all the atmospherics, the statement sealed the OAS's irrelevance and the most promising chapter in the regional organization's history.
Both sides in last week's theater are claiming victory. On the pro-Cuba side, the governments of Venezuela, Ecuador, Bolivia, and Nicaragua wasted no time in sending their foreign ministers to declare the resolution that overturned the 1962 rationale for Cuba's suspension—as a Marxist-Leninist government—as a blow to the U.S.'s embargo policy. In a parallel media blitz, U.S. officials rushed to say that the consensus agreement did not readmit Cuba into the OAS, but only called for dialogue in line with "practices, proposals and policies of the OAS."
The latter is supposedly a reference to the human rights and democracy requirements for membership, set out in a number of OAS documents including the 2001 Inter-American Demoratic Charter—heralded at one time as the greatest achievement of the OAS. Now, unfortunately, it's relegated to an oblique reference. Despite the U.S.'s efforts to put the best face on this, the reality is that the final document failed to include explicit mention of the issues detailed in the charter, such as respect for human rights and democracy—topics that the U.S. had insisted be included.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.