Financial & Economic Crisis hits Latin America

It was the turn of Latin America's stock market to take a nose dive this Wednesday - "Dark day for faltering LatAm stocks" . In Chile they dropped 6.3%, in Mexico by 7 %, in Brazil by 10%, and last but by no means least Argentina, where they dropped by 18%.

The magnitude of the drop in Argentina was provoked when President Cristina Fernandez announced plans to nationalise the private pension funds.

She said the nationalisation would protect retirement funds from the global financial crisis, but analysts said the move would drain company access to private capital. Argentina's Congress is expected to approve the proposal within weeks. BBC News: "Turmoil in Latin American Markets".

Privare investors have been upin arms, not least a Merrill Lynch executive who stated bluntly that his bank had now written off any investment plans in Argentina "for at least the next half decade." - AFP, "Latin America in Jaws of Global Crisis"

As I mentioned in an earlier post - "Global Depression: So What About Latin America" - much of the worry in Latin America on the back of the current world financial crisis, stems not so much from the so-called credit crunch, but rather the sharp recession that's meant to hit the world's major markets in the Northern hemisphere, and the decline in commodity prices that it will entail.

Correspondents say international demand is declining for many of Latin America's commodity exports, including oil, copper, iron ore and soy as global growth slows amid the current financial global crisis BBC News, "Turmoil in Latin American Markets".

Whilst demand may be faltering in the US and Europe, demand from the likes of China is still bouyant.

This is not to say that all is as gloomy as one could fear. Precious global recessions have tended to hit Latin America harder than most. The analogy of "when the US economy sneezes, the rest of the world cathces a cold, but Latin America catches phnuemonia" having proven to be quite fitting in th past. This time round things may be slightly different. According to former Mexican foreign minister, Jorge Castañeda:

the region would be largely impervious to the recent crisis. Mexico, Chile, Brazil and Uruguay should manage just fine, emerging with only bruises and scrapes, he argued. Colombia and Peru would weather the storm, though suffering greater harm. But he warned of "severe damage" for Venezuela, Bolivia, Ecuador, Central America and the Caribbean. BBC News, "Brazil squares up to an economic storm"

The severe damage awaiting Venezuela has much to do with the sudden drop in oil prices. Overdependent on oil revenues, Venezuela's extensive public spending could be seriouly affected if oil prices continue on this downward trend. It is therefore no surprise that Venezuela qill be pushing for oil output cuts at this week's hastily convened OPEC gathering in Vienna.

Venezuelan Oil Minister Rafael D. Ramirez said the OPEC members "have to take some action now, now," adding that Friday's meeting will reach "consensus to take a very, very, very fast action." Xinhua, "OPEC members divided over oilput cut"

Last week I attended a public meeting at the Houses of Parliament here in London, where Venezuelan ambassador to the UK, Samuel Moncada, whilst almost gleeful in his depiction of the collapse of the world's financial system, had to admit that Venezuela faced difficult times ahead. So what about all the windfall funds from record-high oil prices that the Venezuelan had been meant to have store away for precisely those times when the oil prices were on the fall? Well, according to the ambassador this would only cover Venezuela's problems for a mere 2-3 months.

South American World Cup Qualification - 10th Round

In a brief post here are the results from matchday 10 of South American qualifying competition for the World Cup.

• Chile vs. Argentina: 1-0
• Bolivia vs. Uruguay: 2-2
• Paraguay vs. Peru: 1-0
• Brazil vs. Colombia: 0-0
• Venezuela vs. Ecuador: 3-1

These results leaving the qualifying table looking like this:

1. Paraguay: 23 pts.
2. Brazil: 17 pts
3. Argentina 17 pts.
4. Chile 16 pts.
5. Uruguay 13 pts.
6. Ecuador 12 pts.
7. Colombia 11 pts.
8. Venezuela 10 pts.
9. Bolivia 9 pts.
10. Peru 7 pts.
    

Paraguay are seemingly running away with the qualification campaign leaving the region's giants - Brazil and Argentina - to fumble about, scrapping points against teams they should normally be able to put away with ease. For Argentina, their defeat away to Chile, the first time this has happened in absolute eons, marked the end for Argentine coach Alfio Basile. The writing had supposedly been on the wall for a good few months now. Lacklustre performances, an endless procession of drab draws in recent matches was not want the Argentine public were demanding. Especailly since Argentina stormed to a gold medal at the Olympics, sweeping aside Brazil along the way. But, this under the guidance of the younger a more attack-minded Sergio Batista - Basile having opted of a leading the young Argentine squad at the Olympics.

Here is what BBC's Latin American football specialist Tim Vickery of Basile's legacy:

But as Basile leaves the scene, he deserves to be remembered. He is one of the game's romantics, for whom the joy of expression speaks louder than the fear of defeat - a philosophy that might be old fashioned, but which should never be out of date.

He remains the last Argentina coach to win a title at senior level - the 1991 and 93 Copa America triumphs from his first spell in charge, which ended with one of the great World Cup matches of recent times, the 3-2 defeat to Romania in 1994. It was a classic tie of attack versus counter-attack, made attractive by the fact that Argentina accepted the risks of taking the game to their opponents.

The highlight of his second spell, before the breakdown in relationships started corroding performance, came last year in the Copa America.It ended in tears, stiffled and picked off by Brazil in the final. But the previous matches were an exhibition of passing football, patient and audacious, hypnotic and dazzling. Being there in Venezuela to watch Alfio Basile's side in action was an immense privilege

Qualification games take a bit of a break for the next few months, with the next not taking place until late March. Plenty of time I'm sure for the Argentine media to get hyped up about the return of the prodigal son, Maradonna, as a possible successor.

South American World Cup Qualification: Round #9

Here are the results and standings from the weekend's South American Qualification games:

• Bolivia vs Peru 3-0
• Argentina vs. Uruguay 2-1
• Colombia vs. Paraguay 0-1
• Venezuela vs. Brazil 0-4
• Ecuador vs. Chile: 1-0

1. Paraguay 20 pts.
2. Brazil 16 pts.
3. Argentina 16 pts.
4. Chile 13 pts.
5. Uruguay 12 pts
6. Ecuador 12 pts
7. Colombia 12 pts
8. Bolivia 8 pts
9. Venezuela 7 pts
10. Peru 7 pts
    

Paraguay remain on course for World Cup 2010 qualification and with a home game coming up against Peru this Wednesday should be able to consolidate their standing at the top of the South American group. Any doubts that Brazil would be struggling in this qualification group are being slowly laid to rest as they notched up another victory, albeit against minnows footballing minnows Venezuela.

South American World Cup Qualification - 6th Round

Whilst Brazil's former coach was getting knocked out of Euro 2008 with Portugal, his former side weren't making much progress back in South America. Brazil played out a dreary 0-0 draw against arch-rivals Argentina in the so-called clásico. A result that now leaves them in 5th place in the South American qualification table for the 2010 World Cup. Of course the Brazilian press were quick to pile the criticism on Brazil's coach Dunga

The Brazilian media were in no doubt as to who was responsible for the Canarinha's unsatisfactory showing. The harshest criticism came from Lance!, which ran with a cover featuring Dunga's head inside a noose and topped by the headline "Hung". "Brazil draw with Argentina as the fans vent their fury on coach - Zico now the popular choice," fumed the sports daily.O'Globo also registered its displeasure on its website. "Dunga gets the donkey treatment as off-key Brazil draw 0-0 with Argentina," ran the merciless headline. Publishing a photo of Ronaldinho in the stands at the Estadio Mineirao, the website added that the Barcelona man and Kaka were sorely missed, stating that "without them the future looks bleak". With Brazil's other stars having another off day, O'Globo also remarked on the warm applause Lionel Messi received when he was substituted.Running with a front page photo of a closely marked Adriano trapping the ball on his chest, Jornal do Brasil opted for a short but no less powerful headline: "270 minutes without a goal". The online version of the paper was just as critical: "Even with the Mineirao right behind them, Brazil were incapable of beating Argentina. To cap it all, the fans chanted 'Dunga out' as he made his way off the pitch. All in all, a sad goodbye for a coach who had stakedeverything on this game."Joining in the chorus of disapproval was Folha de Sao Paulo. "What a miserable clásico", it complained before highlighting the fans' displeasure: "The crowd whistled the team and demanded Dunga's sacking." (source: fifa.com)

Otherwise results of note included group leaders Paraguay losing 4-2 to Bolivia. Bottom spot in the group now belongs to Peru after being 6-0 thumping by Uruguay. And Chile have now displaced Brazil from the important 4th place spot - the top 4 teams qualify for the World Cup -with an exciting 3-2 away win to Venezuela.

Results:

• Brazil vs Argentina: 0-0
• Venezuela vs Chile: 2-3
• Ecuador vs Colombia: 0-0
• Uruguay vs Peru: 6-0
• Bolivia vs Paraguay 4-2

Table:

1. Paraguay.....13 pts
2. Argentina....11 pts
3. Colombia.....10 pts
4. Chile.............10 pts
5. Brazil.............9 pts
6. Uruguay........8 pts
7. Venezuela.....7 pts
8. Ecuador.........5 pts
9. Bolivia............4 pts
10. Peru...............3 pts

Here is a good youtube video with all the highligts from this weeks' games. Disfrutenlo!

Latin America Pays for the Price for Fuel Subsidy

Before sitting down in the library, to get on with my dissertation reading, I quickly paged through the Financial Times – one of the few, if only, British newspapers that tends to print interesting Latin American politics/economic articles. Today there was an interesting analysis piece about how Latin American governments are facing increasing pressures to cut fuel subsidies in the face of the ever-increasing oil prices. “Latin America pays the Price for Fuel Subsidy.”

Here in the U.K. a day doesn’t go by without further doom and gloom reports about the negative effects oil price increases are having on the average Brit, especially as they go to fill-up at the petrol station. A news story that is being played out across much of the world.

However in Latin America - as had been the case, up until recently, in Asia – governments have been subsidising petrol prices to tune of some ridiculously large billion-dollar sum. In this way Latin American motorists can still enjoy petrol prices a little as 5p a litre, whilst the rest of the world’s motorists have to dig deeper and deeper into their pockets to fill up their cars.

source: The Financial Times 17/06/2008

Why are they doing this? Perhaps Latin American governments are aware of the vital importance access to cheap petrol is for so many of their citizens. Any sudden increase in prices will surely effect these nations in more ominous ways than we in the West would be effected by such price changes. The FT rarely does economics with a ‘human face’ so these issues don’t get much of a mention in the FT piece. However what they do focus on are the possible consequences a sudden increase in petrol prices may have on inflation.

The reason for the lack of reform is pretty clear. Of all regions in the world, Latin America has most reason to fear the effects of inflation. During the 1970s, 80s and early 90s the pace and scale of price rises corroded the social fabric of many countries. Inflation rates of 100 per cent a year were commonplace, wrecking the ability of governments and businesses to plan for the future. As Guillermo Ortiz, the governor of the Mexican Central Bank, said: “Latin America has gone through high inflation for so long. Lowering the rate has been a cherished achievement.” In Chile, which imports almost all of its fuel needs and where annual inflation was running at 8.9 per cent in May – three times the central bank’s target – the new price subsidies will cut that rate by 0.3 percentage points, according to Angel Cabrera, a local consultant.

An interesting point.

However as the price for oil rises, the subsidies have to increase, and are subsequentlybecoming a conseiderable fiscal burden, which in itself may well curtail government spending in other important areas. The question is whether this outweighs the threat of higher inflation and the problems that would arise from that?

The FT ends by highlighting how cheap access to petrol does little to motivate a lower use of petrol in the long-run, something which mus be a desirable end in itself - be it to combat climate change, to free up some of Latin America’s clogged up innercity roads etc.

More seriously, the subsidies are distorting incentives. While higher oil prices have stimulated many developed countries to save energy and make more efficient use of resources, there has been no sign yet of this happening in Latin America. In Venezuela, for example, domestic petrol consumption is estimated to have doubled over the last five years to around 600,000 barrels a day. The low cost also creates incentives for smugglers, who sell petrol across the border in Colombia, where fuel is much more expensive.

South American World Cup Qualification - 5th Round

So whilst the major European soccer power (minus England, I guess) slug it out for the European championship this summer, South American nations took another step in their long and arduous qualifying campaign for the 2010 World Cup. Up until now, after 4 games, the story had been of Paraguay leading the way with 10 points, and I guess of Brazil still not having started to fire on all cylinders, with only 2 wins from 4 games.

Well yesterday’s 5th round of qualifying matches emphasised those points with Paraguay stunning the Brazilians with a 2-0 victory in Asuncion. With plenty of games still to go and the first 4 teams guaranteed qualification there is no need to push the Brazilian panic button quite yet, but still…

Otherwise it’s a case of ‘as you were’ with all 3 of the ties ending in draws and Bolivia predictably losing to their age-old enemies Chile in La Paz – so much for the advantage of altitude. And also of note is Venezuela's progress. They're normally the team cemented to the bottom, given how Baseball probably overrides football as their national sport.


Bolivia vs. Chile 0-2
Argentina vs. Ecuador 1-1
Peru vs. Colombia 1-1
Uruguay vs. Venezuela 1-1
Paraguay vs. Brazil 2-0

_______________________

The table now looks a bit like this:

1. Paraguay 13 pts

2. Argentina 10 pts

3. Colombia 9 pts

4. Brazil 8 pts

5. Venzuela 7 pts

6. Chile 7 pts

7. Uruguay 5 pts

8. Ecuador 4 pts

9. Peru 3 pts

10. Bolivia 1 pt

________________

Below are a few youtube video highligths of the differetn games. The quailty isn't great but the audio commentary is as outrageously South American as one could hope for. Enjoy...

Paraguay vs. Brazil: 2-0

Argentina vs. Ecuador: 1-1

Bolivia vs. Chile: 0-2

Peru vs. Colombia: 1-1

Uruguay vs. Venezuela: 1-1

The next round of games take place later this week with the obvious highlight being the battle of the titans- Brazil vs Argentina. Paraguay should also be looking to consolidate thier lead at the top of the table with a relatively easy game against the Bolivians. But I'll make sure to let you all know how they got on.

Another President in the Dock

Turn the clock back some 20 years ago and much of Latin America was a murky world of dictatorial, authoritarian regimes where human rights abuses were common place. Military regimes had come to power under the belief that they were legitimately holding back the spread of Communism and the social revolutions that were supposedly threatening to overrun the region.

In Latin American economics we talk of the 1980s as the ‘lost decade’ where economic growth stagnated or went backwards. Along those same lines the late 1970s and much of the 1980s can be looked upon as the decade of the desaparecidos (the ones who disappeared). The hundreds of thousands who literally disappeared in the ‘dirty wars’ fought by military governments against those guerrillas and left-leaning movements that opposed them.

One by one though, many of those political leaders who stood at the forefront of these dirty wars are being brought before national courts and sentenced. The Southern Cone countries of Chile, Uruguay, and most notably Argentina have been, and continue to be, at the forefront of confronting their murky pasts. These weeks though the attention has switched to Peru where its former head of state, Alberto Fujimori, has been put on trial for the supposed massacres he ordered at the height of the war against Sendero Luminoso (The Shining Path) in the early 1990s.

There are some notably differences that make his trial noteworthy. First of all, that he was extradited to Peru from Chile and neighbouring country with whom they have never had the most cordial relations in the world (but then which neighbouring South American countries ever have sincere cordial relations one may ask?). Regional cooperation with regards to dealing with past human rights abuses seems to be an important step forward. Secondly Fujimori must be one of the first democratically elected, civilian Presidents to stand trial for crimes against humanity in South America. Former Presidents in both Argentina and Chile have stood trial but they were both military dictators. So questions may be asked as to which currently elected civilian presidents should be quaking in their boots? Please feel free to nominate any...

At the moment though Fujimori has been found guilty for some relatively minor abuses of power which will see him spend the next years in prison. In the coming months he will face further charges of the more serious accusations with regards to his role in the massacres of civilians in the Peruvian Andes.

Given so many of the problems Latin America faces on a day-to-day basis and how it lags behing the world on so many issues, it is nothing short of impressive how their otherwise weak and seemingly corrupt judiciary systems have been successful in bringing to court some of the most powerful figures of Latin American history. It's perhaps no surprise then that when the International Criminal Court was set up to pursue crimes against humanity on a worldwide basis that they chose Luis Moreno-Ocampo, an Argentine with experience their own dealing with human rights abuses to be the court’s Prosecutor.