2014 was a
year without many changes in the political landscape in the region. In the cases that we witnessed and election, most
of the regional governments remained within a center-left political coalition or moved to. Chile saw the return of Michelle Bachelet to a second
mandate; the reelection of Dilma Rousseff in Brazil, José Manuel Santos in
Colombia and Evo Morales in Bolivia; and the return of Tabaré Vásquez for a
second term in Uruguay, after the charismatic José Mujica. In Central America,
presidential elections were held in Costa Rica, where the center-leftist Luis
Guillermo Solís Rivera was elected; in El Salvador was elected the incumbent
Vice President, Salvador Sánchez Cerén; and in Panama also was elected its
incumbent Vice President Juan Carlos Varela. Thus, in most of the region the
ruling party remained in the government, except for Chile, that
switched to a center –left ruling coalition, and Costa Rica that changed the
ruling coalition but within similar ideologies, to PAC. 2015 is expected to be
much less active in terms of presidential elections, which are scheduled only
in Argentina on October 18, and some surprise we might have if finally
something happen with the long lasted postponed presidential election in Haiti.
Over all, the the majority of the governments in the region belong to a center-left coalition, in a
norm that already lasted for at least a decade, and without signs for a change
within the medium term (even though we should be alert on how things evolve with the increasing political instability of
Venezuela and Argentina).
Where
we can see large changes is in the regional economic landscape.
Just now, in January 2015, the IMF projected for 2015 a rate of global economic growth of 3.5%, down 0.3% from its projection from last October or down 0.5% from its projection from July 2014. Thus, in only six months we have seen a sharp change in the global economic outlook, things are getting worst and not better. This puts some shadows on Latam exports and access to financial
markets.
For the region, IMF
forecasted economic growth of 1.7% for 2015 and 2.9% in 2016, far below the 4.2% achieved
in 2011. Behind this is the decline in world economic growth, with diminished projections for the demand of commodities, reflected in important price cuts of major commodities, such as
oil, copper, soybean, and others, with a negative effect on the value of Latam commodities exports. By late 2014, commodity
prices have fallen 20% on average since their maximum in June 2014, where
copper has fallen 6% since July 2014, soybean 31% since April 2014, and oil
(WTI) 28% since June 2014 or almost 50% if we account for the last day of
December 2014.
Because of the weaker global market, as well as local conditions, we see a sharp reduction in economic growth projections for many of the Latam leading economies. For Brazil,
economic growth is forecasted at 1%, Argentina -0.3%, Venezuela -2%, and the
South America region as a whole 1.1%. Even though some countries still have promising growth rates, like Bolivia, Colombia, Peru
and Uruguay, where economic growth is forecasted to be above the 4% mark in 2015. The
weight of Argentina, Brazil and Venezuela in regional GDP is important, and
their performance can have side effects within the region. And undoubtedly there are major problems in Venezuela and Argentina. Much better is the IMF forecast for Costa
Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador and Mexico, as a
group, with 3.4% economic growth projection for 2015, where Mexico alone
is expected to grow 3.3% in 2015.
Source: NASDAQ.
The sharp
reduction in the oil price affected Latam oil producers, such as
Venezuela, Brazil, Ecuador, Colombia, and Mexico, and sets a challenge in the short to medium term on the profitability of new oil fields developments
in the region, such as the pre-salt in Brazil, and the on and off-shore
projects and auctions which are expected to pick up in Mexico this year. Most of these new developments have been envisaged
expecting reasonable returns with an oil price in the US$ 100 mark. For
Copper, Chilean government made the 2015 Budget with a copper price in US $
3,07 per Libra and projected economic growth of 4.3% for 2015, but 2014
Chile ended with a copper price of US$ 2,88 per Libra and is expected that 2014
the final growth rate mark will only be in 1.7%, whereas for 2015 growth projection is 2.9%
(according to WBG projections; or 2.8% as just projected by the IMF down from its 3.2% projection from last October).
Latam
countries which have had large fiscal expenditures, financed from the boom in natural
resources price or windfall, or by using the scarce sources of finance
available in international markets, face tighter revenues and this set a big stress on their capability to cope
with large fiscal budgets. Countries which in the past has sound fiscal and monetary
policies, and constructed wealth funds from the revenues obtained
from the natural resources, are today in a better position to implement countercyclical
fiscal policies, and thus better prepared to face a tight global market
situation.
Cheaper oil
prices can be a tail wind for oil importing countries, but will create turmoil
and stress in oil exporting countries and on oil companies` assets. And for most Latam countries, the reduction in commodity prices has a negative
effect on export revenues. Latam currencies have depreciated, and while this can boost exports in the short term this dump consumption as tradable
goods become much more expensive. In the recent past, a sharp fall in oil price
has happened in 2008 as a response to weaker world conditions as a result of the economic
crisis. Today, the sharp decline in oil prices coincides with lower
expectations of world economic growth, but also with a more abundant oil supply, coming
mostly from the US and in other regions.
Exchange
rates 2013-2014
World Bank
Slow world
economic growth leads to higher financial volatility, and in the US the end of the QE to
higher financial costs, and all together to a weak demand for commodities. Thus, among the incoming risks for the region are unfulfilled expectations and its political turmoil,
driving to increasing social unrest. How the governments manage these situations
is crucial for job creation, productivity and economic growth, in a time when
FDI has fallen significantly in the region. Those countries that created wealth
and fiscal buffers will be much well prepared to face the next couple of years,
where expectations are of tight global economic growth as well as in the regional
economies. Countries without fiscal buffer and which in the recent past lacked from sound macro and
micro economic management will face hard times, which might have side effects
on other regional economies. Today is key for the region the improvement its productivity, adopt best practices in terms of public policy, promoting economic growth, responsible social inclusion policies and creating an enabling
business environment. With the largest and leading economies in the region having a dubious position on these issues, in terms of the importance of economic growth and promoting business enabling policies, it will be
hard to be sexy in a globalize world to attract the needed FDI. As, meanwhile, we will see a bumpy 2015, but with some remarkable exceptions
within the region.