Montevideo 2: economic boom masks big macro split

The Inter-American Development Bank meetings are all about chummy Latin solidarity and business opportunities, entwined with high-falluting discussions on the region’s prospects. They usually come with a slightly positive spin thanks to the prospect of all the business available from government ministers and Central Bankers who attend these jollies in force. This year was no exception although Latins are able to congratulate themselves with good reason as economic prospects do really look positive as the region continues to outpace the developed world. But let’s not get too smug. Latins are deeply split on two key issues: protectionism and capital controls.

Argentina in particular and Brazil more fuzzily have been stepping up protectionism. Argentina is facing a massive outflow of dollars and (further) drops in investor confidence and wishes to avert a balance of payments catastrophe. It is undermining Mercosul and causing howls of anguish in neighbouring Uruguay. Brazil meanwhile is facing a grinding de-industrialization as its currency remains buoyant thanks to continued demand for its commodities although the effect of the slow-down in China remains to be seen. It is trying a blend of selected tax cuts for badly-hurt industries, the opening of anti-dumping enquiries and attempts to depreciate the currency through rate cuts.

The attitude of the two Mercosul giants pits them against free trade poster child Mexico, which is understandably miffed as both have sought to rip up agreements on car imports, signed at a moment where Mexico was an importer (it is now a net exporter to both). Brazil got its deal which limits imports to $1.55bn per year for three years. Last year, Brazil imported $2.1bn of Mexican cars and parts. But Mexico blew Argentina a raspberry.

Meanwhile, Brazil’s capital controls – with financial taxes on bonds stepped up progressively and constant references to possible unspecified further measures to keep markets on their toes – has split the region and indeed economists. Some bewail the unpredictability and the long-term effects on investor confidence while others support what they see as necessary moves to stem speculation.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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