Issue 2 2009 > Latin America Rides out the Economic Storm
Latin America Rides out the Economic Storm
What is it that makes certain countries in Latin America seem to have avoided the worst of the global economic downturn? This article explores this question and provides an overview on how the region is coping with the current economic environment.
One year ago, some countries in Latin America seemed immune to the rising tide of economic woes while others were being enveloped by it. How did the region stay afloat while others sank? It did so by keeping a firm grip when others loosened their hold. Could it be that by the time this region begins to feel the pressure, the economic recovery will be fully underway, allowing a lucky few to escape the worst of the recession altogether?
Crown Relocations CEO for the Americas, Brian Valentine, offered his insight, "some Latin American countries are better prepared to ride out the storm. For us, mainly Chile and Brazil, which have been taking strong steps over recent years to shore up their economies. There is the case of Mexico, however, which always has been different from other Latin American countries because it is more directly affected by the U.S., and will suffer a significant impact this time."
Brazil, being Latin America's biggest economy, can be considered the barometer for the region. It stood erect against the brimming recession while all around the world, others were feeling and already reacting to the backsliding economy.
Regina Mattos, Crown's regional manager for Brazil, explains that, "Brazilian banks had been very strict about making loans, which prevented the real estate boom and corresponding bubble that was seen in the United States from affecting the Brazilian system. The number of people moving to Brazil was still on the rise, natural resources plentiful and foreign investments were flowing."
At the start of 2009, Crown Relocation polled its offices around the world to gauge the effects of the global crisis and discovered that in some regions, such as the United Kingdom, expatriates were being repatriated early and others were being allowed to complete their contract but without the option for renewal. For that and other reasons, it was becoming increasingly difficult for employers and human resource professionals to maintain staff motivation and morale.
But countries such as Brazil and Chile, which had become very competitive with the rest of the world, were focused on strategies for attracting foreigners and foreign businesses, as well as solidifying their growth and investments. The World Economic Forum says the "Santiago Consensus" (an action plan for sustaining growth and productivity in the region) prioritized education, infrastructure and research & development investment. One strategy under consideration was the offering of Asian languages in schools to attract people and businesses from that part of the world.
The region's appeal has to do with its high volume of foreign trade and the individual countries' competitiveness. Brazil's trade partners are said to be in the hundreds and Chile outranked Argentina, Brazil, Mexico, and others in the 2008 Global Competitiveness report–produced by the World Economic Forum.
Of the companies on the 2008 Forbes 2000 list, 34 are Brazilian and other Latin American countries like Venezuela also are listed. The region was basking in success and then came the most unbelievable economic crisis. It was delayed getting to the region but, alas, it has reached it. Brazil's central bank is reporting changes in foreign investments for 2009. It is less than recorded this time last year.
Roberto Monroy, Country Manager of Crown Mexico
The propping up of the global economy is not moving as quickly as some expected and unexpectedly the Swine influenza pandemic adds to Mexico's plight. Not many industries can hold up under the pressure and when asked if those in Latin America might, Valentine assured, "No world region is immune to the international financial crisis and this includes Latin America, though it had recently enjoyed good times thanks to growing foreign investment and rising commodity returns. The worldwide credit squeeze is about to unload its effects on the balance of the world. It's likely that, over the next few years, Latin America will see a significant decline in export revenues and foreign investment originating from the U.S. and this occurs at a time when the region was starting to slow anyway."
From the relocation perspective, Valentine does not expect any dramatic swing in the industry. Asked if people are moving out of Latin America at the rate they are from Asia and other regions, he said there are no "significant changes to normal patterns in the business, in Latin America."
Mattos believes the relocation companies in Brazil are benefiting from the rest of the world's problems. For Roberto Monroy, Crown's country manager in Mexico, it is a more complicated judgment to make. He explains, "Large corporate offices closed their doors in the wake of the pandemic. All the industries including tourism have slowed down, but it is too difficult and too soon to tell how much the economic crisis contributed and to what extent the pandemic worsened the problem.
This lull in the upward motion of the Latin American economy still does not mean it will wind up lagging behind the rest of the world's economic tribulations. There is still the slight chance that the region could blaze a trail for the world's economic recovery.