International Trade And Finance + Currency Essay - 2,491 words

International Trade and Finance + Currency Latin America is undergoing a difficult period as its countries face significant economic, political and social challenges. Financial institutions operating in the region play a key role for Latin American countries seeking to rebuild their economies. Despite a slowdown in economic growth in Latin America in 1999, trade continued to develop while foreign direct investment saw only a small decline. The deceleration apparent was stronger in 1999, with GDP growth of only 1%, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and the World Bank. Santander Investment was 1.5% growth, while JP Morgan expected 0.9% growth in 1999. Brazil, by far the region's largest economy, encountered an outright recession, decreasing its economy by 1%. Venezuella also witnessed a contraction of 1.5%. Mexico and Argentina, the next largest economies, were expected to grow by 3% and 2.5%.


1 According to a survey by the Santiago Chamber of Commerce in Chile, privatizations are expected to attract some $72 billion between the first quarter of 2000 and the end of 2001. At the present time, international investors are losing confidence in Brazil. It is mortivated by the economic collapse in Argentina which threatens to hurt economic plans in several Latin American countries. The domino effect, once used to describe the spread of communism, now refers to the spread of international financial crises and describes emerging market economies. But the collapse of Argentina's financial system did not have a substantial impact on the other countries in the region. But at the present time, the situation is changing.


Doubts appear about neighbor economies. Brazil saw the fall of its currency. The cost of servicing its foreign debts has soared. In June , Uruguay abandoned its currency peg and floated its peso, which promptly sank by nearly 10% in two days. Ecuador finds its own corruption problems more difficult to handle because of nervousness about the region. as a whole. Francisco Gil Diaz opened a question of ordering public finances.


Mr Gil Diaz likened Mexico to Argentina to tackle its public finances before the crisis erupted. (internet). Smaller economies, like Uruguay was forced to abandon its currency board, because the collapse of confidence in Argentina had made deposit-holders in Uruguay to switch their money into dollars. The large proportion of deposit-holder are Argentines. Such a situation created pressures on the central bank. The banks reserves had fallen by around 40%, which made the currency peg unsustainable. Smaller economies appear to be in recession with high unimployment rate.


On the basis of the economy collapse, many Argentines blame the external factor for its failure. The resignation of Mario Blejer, the widely respected central-bank governor has further undermined hopes that a settlement with the IMF can be reached before repayments of loans from the Fund fall due over the coming months. It is said that the main problem lies with Argentina's politicians. They remain reluctant, often for electoral reasons, to push through the reforms needed. Mr Blejer's resignation is attributed in part to the difficulties he found in working with the economy minister, Roberto Lavagna, and to the reluctance of the president, Eduardo Duhalde, to take tough and potentially unpopular decisions. (internet). The global economic upheavals that began with the meltdown of the Asian "tigers" and led to the collapse of Russia's economy have spread throughout Latin America, with devastating implications both for the population of the continent and for world capitalism.


The beginning of the week saw a sudden surge on the stock markets of Sao Paulo, Buenos Aires, Mexico City and other Latin American capitals following statements by President Clinton that he would seek a coordinated response by the G-7 governments to halt the slide of the region's economies, and most particularly that of its main growth engine, Brazil.2 The Latin American events carry with them the threat of a "disintegration of the world capitalist system," the multimillionaire financier George Soros testified before the House Banking Committee in Washington, DC on September 15. Soros is heavily invested in the region. He is the largest real estate owner in Argentina and has extensive interests in Brazil and elsewhere. He told the committee that financial speculation threatened to bring down the economies of both countries. "Capital flight has already reached Brazil," he said, "and if Brazil falls, Argentina will be in danger." Capital flight, triggered by the events first in Asia and then the insolvency of Russia and Malaysia's closing of its financial markets to foreign investors, had provoked a "general economic panic" that is now ravaging Latin America, Soros said. He warned that this tendency is quickly turning into an "international credit blockade" against the so-called less-developed countries.3 Soros pointed to the rise in interest rates to 50 percent in Brazil and 35 percent in Argentina, declaring that these figures were indicative of a "calamitous situation" that would, over the long term, end in an economic "collapse." He warned that if the economic disease spreading throughout Latin America is not dealt with, it will inevitably spread to the "center of the system," the United States itself, adding, "I don't think any bailout is possible." The Brazilian government of President Fernando Henrique Cardoso hailed Clinton's statements about the necessity for a coordinated international response to the mounting Latin American crisis.


The country's finance officials made it sound like a financial rescue package was all but in place. With barely three weeks to go until the country's presidential elections, the government is desperately trying to buy time, staving off a financial collapse and a social explosion. What none of the officials promoting the prospects of a Clinton rescue package are discussing, of course, is the price that would be exacted from Brazil's workers and poor to pay for fresh credits. Standard and Poor's, Moody's and the major Wall Street investment firms have all made it clear that world finance capital is demanding a brutal escalation in the attacks on living standards and basic rights as a condition for any financial bailout. What remains of Brazil's social security system and labor laws would have to be scrapped. Whatever deficit-cutting measures are taken, however, will be quickly eaten up by increased debt costs resulting from the country's staggering interest rates.(2). Brazil has seen a loss of more than $20 billion in international reserves over the past month and a half, $6 billion of it during last week alone.


Even the brief spate of optimism following Clinton's remarks has only served to slightly slow the hemorrhaging capital flight, down to a level of approximately half a billion dollars a day. Increases in interest rates to 50 percent and a wave of devaluation will mean a huge reduction in consumer spending and ultimately a continent-wide depression that would wipe out earnings in a region that has been a central focus in US "emerging markets" investment. Referring to the new round of economic austerity programs and emergency measures taken to stabilize the region's economies, ECLAC declared, "the measures that have been adopted are much more stringent than would have been justified by conditions in each economy, as they have been put in place in response to foreign speculation. As a result of the financial contagion, the Latin American countries will have to bear heavy costs, which have no domestic justification and are, thus, economically and socially inefficient." In other words, measures imposed over the past two decades in the name of free market reform and ...................................................................................................................................................................................................................................................................................................................................................................

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Essay Tags: latin america, latin american, argentina, international trade, latin

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