Saturday, January 10, 2009

FT Commentary -- How are frozen credit markets and the global slowdown being felt down in South America?

Stephen Fidler put together a great piece on January 8th where he presents various perspectives and analysis from South America on how the global crisis is affecting the region.

Across the continent, the crisis has brought about a large-scale destruction of wealth. Claudio Loser, a former western hemisphere chief at the International Monetary Fund, calculates that 40 per cent of Latin America’s financial wealth was wiped out in the first 11 months of 2008 through falls in stock and other asset markets and currency depreciation. That $2,200bn (£1,440bn, €1,610bn) loss alone could cut domestic spending by 5 per cent next year, he estimates.

On top of that, flows of credit from abroad have contracted sharply and the region, much of which depends on exporting raw materials, has been pummeled by a collapse in commodities prices. The deterioration in Latin America’s terms of trade – the price of exports divided by the price of imports – could hit even harder than the credit crisis, says Mr Loser, now with the Inter-American Dialogue, a Washington think-tank. “The fact that the terms of trade have gone so far against the Latin American economies in terms of agriculture, minerals and petroleum is really going to hit the region very hard,” he says.

Click here to access the full article from the Financial Times