Some time in September 2008, Brazil’s president, Luiz Ignácio Lula da Silva was asked by journalists what he thought about the global economic crises we are going through. He replied by saying, “When people ask me about an economic crisis in the world, I tell them, go ask George Bush. After all, it is his crisis and not mine.” Such has been more or less the attitude of the Latin finance world to contemporary issues and developments. Whether described as indifference or whatever else, Latin finance has had a hands-off policy of administrating growth and development for a long time now.
It is easy to understand why this delusion has been perpetrated in the region about the non-volatile status of their financial institutions. Policymakers and key economists on the world stage have been full of praise for Latin America’s increasing financial independence and industrial maturity. Of repute has been the fiscal discipline, sustained economic growth, reducing external debt and aid levels, high commodity prices, growing international and national reserves, strengthened governance, and the national and corporate balance sheets health. These developments are amiable and deserving of praise indeed. They are indeed very promising in the race to place Latin America on a firm economic footing by and by. The only problem is that without a change of approach and policy, Latin markets might find themselves irrelevant, and very soon at that, in the face of new developments in the world finance circles.
An instance of this myopic indifference was experienced immediately the credit crisis hit the U.S. financial markets. Most experts and public officials expressed confidence that the Latin finance world was safe and sound. They said that the Latin economy could not experience the ripple effects of the US mess for they were well cushioned by their growing trade associations with both China and India. Instead of moving into reactive mechanisms of protecting their market, the Latin finance world largely became a spectator of the U.S. slowdown.
It took less than a month for the spiraling wreckage of the worldwide credit crisis to hit Latin American countries, and hard when it did. Though free from subprime mortgages, the Latin finance world has amplified the access to cross-border finance deals in the recent past. This has made it very easy for northern American market players to stifle the lending and investment deals with their Latin partners. In Brazil for instance, state-owned oil multinational, Petrobras, recently announced expected delays in exploration of new oil wells due to the market crisis in the world. Across the continent, Peru has had two of her prime iron-ore projects delayed. Mexico and Brazil have had robust tourist arrivals in recent times but these have gone missing for this year. The once-boisterous demand for Latin goods and produce is waning in the US, Europe, and Asia. Whatever they believe, Latin finance policy makers must realize that nobody in this global village is isolated from either global doom or global boom.
When the world has credit scarcity then investment in the Latin finance world must also go down. When the United States or and any other part of this world edges towards recession, there is a counter effect somewhere in the world market circles. Today, demand for the basic economic goods and commodities that have helped edge Latin countries higher in world markets is declining at a high rate. The ever high prices for most Latin American staples such as wheat, corn etc, have fallen by 35-30% in the period between November last year and March this year. The golden product of the region, sugar, slumped by a 20% percent margin in the same period.
The financial markets of Latin America are operating on a policy framework established and shaped by the past decades yet the world at large is experiencing a shift in the economic thinking in regards to market-based financial growth and development. The Latin finance world therefore requires a complex emergency overhaul or at least supplementation if the region is going to stand the financial crises in the contemporary global economy. This current status has been expressed by economic experts repetitively over the last few years with a keen emphasis on the need to augment the policy paradigm of Latin economy, in such ways as can promote financial stability and mutual convergence of the region’s markets to new international standards.
[ad#downcont]In truth, there exists a perpetually growing dissonance and discord between current Latin finance paradigms and global economic issues emerging in this age. Of key interest are the challenges being faced in three sectors of the Latin finance world namely, stock markets, pension funds, and small-to-medium loaning enterprises. To emerge as the global leader that it targets to be, the Latin finance world must emphasize on the need for a fresh review of the evidence at hand, improve crises diagnostic mechanisms, revisit the objective expectations of the existing policy framework, and then revise the current paradigm in light of emerging issues in the world market.