The General Secretariat of the Andean Community of Nations (CAN) announced on Tuesday that trade between its four member countries—Bolivia, Colombia, Ecuador, and Peru—reached $10.4 billion in 2012. Exports within the bloc grew 12 percent, while exports to countries outside the bloc grew 3 percent in 2012.
The CAN has facilitated intra-regional trade in a number of areas but with the greatest emphasis on manufactured goods, which accounted for 75 percent of exports ($7.5 billion) last year. This includes soybean oil, refined copper wire, ultra-light aircraft, and medication.
Countries within the regional trading bloc have seen tremendous growth despite the global financial crisis. Peru boasts the second-fastest growing economy in Latin America averaging 7 percent growth per year for the past eight years. In comparison to the 3 percent average growth for the region in 2012, other members also saw high relative growth rates: Bolivia grew 5.0 percent last year, Colombia grew 4.5 percent and Ecuador’s economy grew 4.8 percent.
The Brazilian government announced yesterday the first phase of a 25-year stimulus package designed to reignite the Brazilian economy. The plan includes more than $60 billion of investment in 10,000 kilometers (6,200 miles) of railways and building or widening 7,500 kilometers (4,660 miles) of federal highways, with that to be followed by investments in ports and airports.
Under the new strategy, the Brazilian government aims to double the capacity of the country’s transportation system to reduce significant infrastructure bottlenecks - a critical step to fostering long-term growth. This would help bring the export environment in Brazil closer in line with those of other BRIC countries. In general, exporting from Brazil is twice as expensive as exporting from China, and 1.5 times more expensive than from India.
The administration also hopes to boost labor know-how – one of the country’s main limitations – by handing over to the private sector the responsibility for developing and managing the new infrastructure. The government will grant concessions for construction, maintenance and operation of the projects through a competitive bidding process. This new emphasis on investment is a different strategy from previous growth strategies focused on increasing local consumption
This year Brazil’s economic growth is expected to be less than 2 percent—the country’s worst performance since 2009 and a sharp slowdown since the 7.5 percent seen in 2010.
With inflation this month reaching a projected 6.3 percent per year and a currency that has increased 47 percent against the dollar since the end of 2008, could the Brazilian economic miracle be just a bubble? Though there are warning signs, there are also positive signals that indicate Brazil be able to power through--though at significant cost.
First the negative signals. Chief among these is the signs of an overheating economy. In June the Central Bank’s adjusted, upward, the rate of inflation to 6.3 percent--slightly over its target. Add to this near full employment, the limited efforts to reduce the Brazilian government’s stimulus (through BNDES and federal spending--especially in preparation for the World Cup and Olympics), and the promise to increase the minimum wage by 14.5 percent next year and it looks like a pressure cooker. Granted it doesn’t approach Argentina or Venezuela, but 6 percent-plus inflation touches the upper limits of the government’s comfort level and is Brazil’s highest rate since 2005.
Second is the overvalued Brazilian real. High interest rates (an effort by the Central Bank to contain inflation), record high commodity exports, and a flood of foreign investment have swollen the value of the real. The appreciated value of Brazilian currency against the U.S. dollar and the renminbi has hurt exports and undercut domestic manufacturing. And in an economy in which corporations have come to rely on foreign credit, the appreciated exchange rate has led many to take out dollar-denominated loans. A drop in the value of the real relative to the dollar would place a serious crimp on those corporations. Any sort of devaluation in Brazil’s floating exchange rate will be tough on the economy.
Latin America and the Caribbean are likely to grow 5.7 percent this year—twice the expected recovery for the United States—say the World Bank and International Monetary Fund in a report released this week. Regional output of goods and services is expected to continue to grow in 2011, although at the slower rate of 4 percent.
Brazil, Peru and Uruguay are expected to grow 7.5, 8.3 and 8.5 percent, respectively. The report highlighted Brazil as an emerging economic behemoth, thanks to credit growth and increased exports of iron ore, beef, soy, and sugar on the international scene, combined with strong consumption and poverty reduction at home.
Experts attribute the better-than-expected pace of Latin American growth—despite the global financial crisis—to a decade of good fiscal and debt management, strong commodity prices, growing foreign investment, and increased trade links with Asia.
The World Bank and IMF report cautioned against complacency, urging commodity-exporting countries in particular not to waste huge capital inflows on domestic financial excess, but instead set up windfall savings funds for emergencies. In addition, Luis Alberto Moreno, president of the Inter-American Development Bank, warned U.S. businesses not to miss out on the opportunity to develop ties to fast-growing economies. He said that for years, free trade in the U.S. has inaccurately been synonymous with loss of jobs. He also pointed out that, as a result of strong macroeconomic performance in the region and various free trade agreements, U.S. exports to Latin America increased 82 percent between 1998 and 2009.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.