HSBC’s head of macro and investment strategy Philip Poole recounts his time in Latin America and the progress the region has made recently.
I recently spent a fortnight in some of the smaller markets in Latin America – countries that historically have not received the level of attention the larger regional markets have been benefitting from for some time now.
During the first week I was on holiday in Uruguay then on business meetings in Chile and Peru. These economies are all doing well – in some cases, very well – and with the prospect this will continue.
It led me to reflect on the fundamental progress made more generally in Latin America in recent years. This is a big contrast from the bad old days. When it came to taking tough decisions, the old story for much of the region always seemed to be ‘mañana’ – why do something difficult today when you can put it off until tomorrow? And, more often than not, tomorrow never came.
Government sacrifice
But this has changed and for a long time now in the leading economies of the region there has been evidence governments are prepared to make sacrifices and take difficult decisions to improve the sustainability of public sector finances and boost future growth prospects. In Uruguay’s case the first part of the noughties was about economic fallout from Argentina’s crisis but now the economy is recovering strongly on the back of sound policy aided by positives that include higher agricultural prices and buoyant revenue from tourism.
Peru has been moving in the right direction for most of the past 20 years although, as one local fund manager told me while I was there, during the first 10 of these, progress was not very visible as it was mostly about escaping from a deep policy hole. Chile’s economic success story stretches back to the 1990s when the economy began to improve following the adoption of free market reforms.
In many ways, Chile’s economic initiatives have provided a leading example for other emerging economies in the region and beyond – particularly in the areas of pension reform and smoothing the impact of price fluctuations in important commodity exports.
The net result is the leading economies in the region are growing rapidly and in many cases unemployment continues to fall.
Residual concerns
Of course, even where the story is fundamentally positive there will normally be some residual concerns. In common with many emerging economies, at the moment the key focus of concern is inflation and, while the pressure may have eased recently, appreciation of local currencies has been an attendant concern.
But in the successful economies in the region central banks have mostly been dealing with these problems pro-actively. In addition, fiscal policy remains commendably orthodox in most cases – a big difference to much of the developed world which is still struggling with inflated deficits and deteriorating debt metrics.
In all of the successful stories in Latin America, a primary element in the better performance has been the establishment of a supportive domestic institutional infrastructure.
This includes key developments in the domestic financial sector where pension reform in markets like Peru, Chile and Colombia have dealt with a fiscal problem that increasingly daunts western governments and laid the groundwork for improvement in financial intermediation that in turn improves economic efficiency and adds to economic growth potential. This has been recognised in rating upgrades, most recently Colombia’s move to investment grade.
Source: www.investmentweek.co.uk
I recently spent a fortnight in some of the smaller markets in Latin America – countries that historically have not received the level of attention the larger regional markets have been benefitting from for some time now.
During the first week I was on holiday in Uruguay then on business meetings in Chile and Peru. These economies are all doing well – in some cases, very well – and with the prospect this will continue.
It led me to reflect on the fundamental progress made more generally in Latin America in recent years. This is a big contrast from the bad old days. When it came to taking tough decisions, the old story for much of the region always seemed to be ‘mañana’ – why do something difficult today when you can put it off until tomorrow? And, more often than not, tomorrow never came.
Government sacrifice
But this has changed and for a long time now in the leading economies of the region there has been evidence governments are prepared to make sacrifices and take difficult decisions to improve the sustainability of public sector finances and boost future growth prospects. In Uruguay’s case the first part of the noughties was about economic fallout from Argentina’s crisis but now the economy is recovering strongly on the back of sound policy aided by positives that include higher agricultural prices and buoyant revenue from tourism.
Peru has been moving in the right direction for most of the past 20 years although, as one local fund manager told me while I was there, during the first 10 of these, progress was not very visible as it was mostly about escaping from a deep policy hole. Chile’s economic success story stretches back to the 1990s when the economy began to improve following the adoption of free market reforms.
In many ways, Chile’s economic initiatives have provided a leading example for other emerging economies in the region and beyond – particularly in the areas of pension reform and smoothing the impact of price fluctuations in important commodity exports.
The net result is the leading economies in the region are growing rapidly and in many cases unemployment continues to fall.
Residual concerns
Of course, even where the story is fundamentally positive there will normally be some residual concerns. In common with many emerging economies, at the moment the key focus of concern is inflation and, while the pressure may have eased recently, appreciation of local currencies has been an attendant concern.
But in the successful economies in the region central banks have mostly been dealing with these problems pro-actively. In addition, fiscal policy remains commendably orthodox in most cases – a big difference to much of the developed world which is still struggling with inflated deficits and deteriorating debt metrics.
In all of the successful stories in Latin America, a primary element in the better performance has been the establishment of a supportive domestic institutional infrastructure.
This includes key developments in the domestic financial sector where pension reform in markets like Peru, Chile and Colombia have dealt with a fiscal problem that increasingly daunts western governments and laid the groundwork for improvement in financial intermediation that in turn improves economic efficiency and adds to economic growth potential. This has been recognised in rating upgrades, most recently Colombia’s move to investment grade.
Source: www.investmentweek.co.uk
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