Latin America’s new burden of high expectations

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Latin America’s new burden of high expectations

As delegates file into this year’s World Bank/IMF meetings in Prague, the mood with regard to Latin America will be much more positive than in previous years. In 1998, Brazil was about to devalue, and panic was in the air. In September 1999, Ecuador became the first country ever to default on its Brady bonds, right in the middle of the annual meetings. Come 2000, and Ecuador has successfully restructured its debt, Mexico has had its first ever truly democratic election, ending more than 70 years of one-party rule in the process, and the Brazilian success story continues. Moody’s has upgraded Mexico to investment-grade status, and upgrades from Standard & Poor’s in both Mexico and Brazil are seen as inevitable. But challenges remain, Felix Salmon reports

Now that Latin America has got through the crisis years, investors wonder where the region might be headed next. Will the years to come bring improved economic performance, political stability and enhanced credit ratings, or will the old uncertainties continue? With Ecuador, Pakistan and Ukraine having all successfully restructured their debt in recent months, default is no longer the anathema it was a year ago. Argentina seems increasingly embroiled in a Fiscal crisis with no obvious solution bar devaluation or default, and the political situation in the Andes continues to deteriorate.

All this, as Latin America becomes increasingly dependent on the United States for export-driven growth, and therefore provides increasingly less diversification from US assets: historically, one of the main reasons to invest in emerging markets.

Ask Paulo Leme, head of Latin American research at Goldman Sachs, whether it even makes sense to think of the region as a whole any more, and he's quick to say that "the concept of a unified bloc is no longer applicable."

All the same, he says, "there is still a common thread, which is economic structural deficiencies. They are all economies with low savings rates, current-account deficits, and high reliance on commodity prices."

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