Capital flows to Latin America: first quarter 2006

Includes bibliography

Capital flows to Latin America: quarterly developments

Includes bibliography

Capital flows to Latin America: recent developments

Includes bibliography

The United States and Latin America and the Caribbean: highlights of economy and trade

Document prepared on the occasion of the visit of President Barack Obama to Brazil, Chile and El Salvador in March 2011

Capital flows to Latin America: recent developments

The external environment has deteriorated sharply as a result of the spiraling financial turmoil, and has led to a weakening in commodity prices and fears of a worldwide recession. Latin America and the Caribbean's fastest expansion in 40 years may be threatened as the global credit crunch makes financing scarce and squeezes demand for the region's commodities. This time around the region is better positioned to weather the crisis than in the past, given improvements in macroeconomic and financial policies as well as a reduced net dependency on external capital inflows. However, Latin American markets are feeling the effects of the crisis through a slowdown in capital inflows, large declines in stock price indexes, significant currency adjustments and an increase in debt spreads. Volatility has soared, with the closely watched Chicago Board Options Exchange Volatility Index moving to an all-time high of 70.33 on October 17, indicating that fear (rather than greed) has been ruling the markets.After reaching record lows in May 2007, emerging markets bond spreads are now above pre-Asian crisis levels. The JPMorgan EMBI+ Latin American composite widened by 146 basis points in the third quarter, with spreads reaching 448 basis points at the end of September. Spreads have widened sharply in recent weeks as foreign investors cut back regional exposure for the safety of U.S. Treasuries. The ongoing lack of liquidity and subsequent liquidation of assets is leading to a collapse in asset prices and a sharp widening in spreads. Daily spreads in October have risen to levels not seen since December 2002, making it much more difficult for governments that need financing to get it. Risk premiums for Latin corporates and sovereigns have risen substantially, but have remained well below U.S. junk (high-yield) bonds. Latin corporates are facing a steep rise in foreign exchange borrowing costs (although less than firms in other emerging markets), which raises concerns that refinancing risks will climb.So far, emerging markets vulnerabilities have been more focused on corporates, as sovereigns have improved public debt dynamics and countries' financing needs are under control. Market performance has been driven by the rapid deterioration of emerging markets bank and corporate market, as well as ongoing losses in emerging markets equities. From January to September 2008, the Morgan Stanley Capital International (MSCI) Latin American Index lost almost 28%, while the Emerging Markets Index lost 37% and the G-7 Index lost 24%. While in 2007 the Latin America component gained 47%, almost nine times as much as the MSCI-G7 index for developed markets, since mid-September 2008 stocks in Latin America have been doing worse than stocks in developed countries, as concerns about access to credit and the adverse impact of sharp falls in commodity prices and in local currencies contribute to increased risk aversion and to outflows of capital. Many governments in the region have used revenue from the commodity boom to pay down debt and build reserves. Now, facing a global financial crisis and the threat of recession in developed countries, the biggest question for Latin America is how long and deep this cyclical downturn will be, and how much it is going to reduce commodity prices. Prices for commodities such as soy, gold, copper and oil, which helped fund the region's boom, have fallen 28% since their July 2 high, according to the RJ/CRB Commodity Price Index. According to Morgan Stanley (in a September 29 report), should prices return to their 10-year average, Latin America's balanced budgets would quickly revert to a deficit of 4.1% of GDP. As risk aversion increases, investors are rapidly pulling out massive amounts of money, creating problems for local markets and banks. There is an ongoing shortage of dollars (as investors liquidate assets in Latin American markets), and as currencies depreciate, inflation concerns increase despite the global slowdown. In Brazil and Mexico, central banks deployed billions of dollars of reserves to stem steep currency declines, as companies in these countries, believing their local currencies would continue to strengthen against the U.S. dollar, took debts in dollars. Some companies also made bets using currency derivatives that have led to losses in the billions of dollars. Dramatic currency swings have caused heavy losses for many companies, from Mexico's cement giant Cemex SAB to the Brazilian conglomerate Grupo Votorantim. Mexico's third-largest retailer, Controladora Comercial Mexicana, declared bankruptcy recently after reporting huge losses related to exchange rate bets. As concerns about corporate exposure to dollar-denominated derivatives increases, yields on bonds issued by many of Brazil's and Mexico's leading companies have started to rise, sharply raising the cost of issuing new debt. Latin American external debt issuance came to a halt in the third quarter of 2008, totaling only US$ 690 million. The cost of obtaining loans for capital expenditures, M&A and debt refinancing is also rising substantially for Latin American corporates amid contagion from the U.S. financial crisis. According to bankers, a protracted trend of shortening tenors and widening spreads has intensified in the past few weeks, indicating that bank lending is quickly following the way of bonds and equity. Finally, money transfers from Latin American migrants are expected to decline for the first time this decade, as a result of economic downturns in the U.S. and Spain, inflation and a weaker dollar. The Mexican Central Bank announced that money transfers from Mexicans living in the U.S. dropped a record 12.2% in August. In 2008, migrants from the region will send some 1.7% less in remittances year-on-year when adjusted for inflation, according to the IADB, compounding the adverse effects of the deepening financial turmoil.

Capital Flows to Latin America and the Caribbean: Recent Developments

For six years, the global economy has been driven by the U.S. Federal Reserve’s policies of easy money. Liquidity has flowed from developed to developing economies, financing infrastructure and corporate investment and allowing consumers to indulge in credit-fuelled retail spending. Thus the effective ending of the Fed’s third round of asset purchases (QE3) at the end of October represents both a watershed and the beginning of a new stage in the world economy. The end of asset-purchases comes at a challenging time for emerging markets, with China’s economy slowing, the Euro zone struggling to avoid a recession and the Japanese economy already in recession. The unwinding of the U.S. monetary stimulus, while the European Central Bank and the Bank of Japan step up their monetary stimulus, has underpinned an appreciation by the U.S. dollar, in which most commodities are priced. An appreciated dollar makes dollar-denominated commodities more expensive to buyers, thereby creating pressure for sellers to lower their prices. Latin American markets ended the third quarter of 2014 under pressure from a stronger U.S. dollar. In this changing external context, there are many signs that a slowdown in Latin American and Caribbean (LAC) financial markets, particularly debt markets, which have been breaking issuance records for the past six years, may slowdown from now on. Commodity prices – including those of oil, base metals and some goods – are in a prolonged slump. The Bloomberg commodity price index, a benchmark of commodity investments, has fallen to a five-year low as China’s economy slows down, and with it the demand for commodities. Investment into the LAC region has decelerated, in large part because of a deceleration of mining investments. Latin American currencies have suffered depreciations, as current account deficits have widening for a number of countries. And LAC companies, having issued record amounts of foreign currency bonds may now struggle to service their debt. In October, credit-rating agency Moody’s downgraded the bonds of Brazil’s Petrobras to tow notches above speculative grade because of the impact of falling oil prices and the weaker real on its debt. Growth prospects look brighter in 2015 relative to 2014, but a strengthening U.S. dollar, uneven global growth and weakness in commodity prices are skewing the risk toward the downside for the 2015 forecasts across the region. The Institute of International Finance expects the strengthening of the dollar to have a divergent impact across the region, however, depending on trade and financial linkages. The Institute of International Finance, Capital Flows to Emerging Markets, October 2, 2014. A stronger dollar lifts U.S. purchasing power, supporting exports, growth and capital inflows in countries with close trade links to the U.S. economy. However, rising dollar financing costs will increase pressure on countries with weak external positions. Given the effects of falling oil prices and a stronger dollar, some companies in the region, having issued record amounts of foreign currency bonds, may now struggle to service their debts. Prospects of Fed rate hikes resulting in tighter global liquidity amid the rapid rise in the corporate external bond stock has indeed raised concerns over some companies. However, there is still a shortage of bonds at a global level and the region still enjoys good economic policy management for the most part, so LAC debt markets may continue to enjoy momentum despite occasional bursts of high volatility – even if not at the record levels of recent years.

The employment situation in Latin America and the Caribbean: Crisis, stabilization and reactivation: performance of the labour market in 2009

Following a five-year period during which economic and social performance in Latin America and the Caribbean surpassed anything seen in recent decades, the global economic and financial crisis not only hurt macroeconomic variables but also impacted heavily on labour markets in the region’s countries. Between 2003 and 2008 employment rates had risen considerably, especially in the formal sector, but the crisis spelled a reversal of this trend. Nevertheless, the region was better prepared than it had been in previous crises, since it had achieved a sound fiscal footing, a good level of international reserves and low rates of inflation. This meant that the authorities had the space to implement countercyclical policies on both fiscal and monetary levels. Be this as it may, faced with the worst global crisis since the Great Depression of the 1930s, these measures could only attenuate the impact on the region’s economies —they could not prevent it altogether. Furthermore, the crisis struck with notable differences among subregions and countries depending on the nature of their trade integration, and not all the countries had the fiscal space to implement vigorous countercyclical policies. As discussed in this third ECLAC/ILO bulletin, the crisis did less damage to the region’s labour markets than had been feared at the beginning of last year, thanks to the implementation of public policies geared towards employment, as reviewed in the two previous bulletins. This bulletin offers an additional analysis from the perspective of gender equality. Moreover, some countries in the region, notably Brazil, managed to rapidly stabilize and revive economic growth, with positive effects on labour variables. The fact remains, however, that millions in Latin America and the Caribbean lost their jobs or were obliged to accept more poorly paid employment in more precarious conditions. The macroeconomic data indicate that recovery is under way and is stronger and occurring more rapidly than foreseen one year ago. In fact, regional growth in 2010 may well exceed the 4.1% forecast at the end of 2009. Consequently, although the unemployment rate may be expected to record a modest drop, it may not return to pre-crisis levels. The upturn is taking many different forms in the countries of the region. In some, especially in South America, recovery has benefited from the buoyancy of the Asian economies, whose demand for natural resources has driven large increases in exports, in terms of both volume and price. Countries whose economies are closely tied to the United States economy are benefiting from the recovery there, albeit more slowly and with a certain lag. Conversely, some countries are still suffering from major disequilibria, which are hampering their economic reactivation. Lastly, Chile and Haiti were both victims of devastating earthquakes early in the year and are therefore facing additional challenges associated with reconstruction, on top of their efforts to sustain an economic upturn. Despite the relatively favourable outlook for regional growth in 2010, great uncertainty still surrounds the global economy’s recovery, which affects the region’s economic prospects over the longer term. The weakness of the recovery in some regions and the doubts about its sustainability in others, as well as shocks that have occurred in international financial markets, are warning signs which authorities need to monitor continuously because of the region’s close integration with the global economy. In addition, a return to growth does not directly or automatically mean higher employment rates —still less decent working conditions. Although some labour indicators have performed reasonably favourably since the end of last year, the countries still face daunting challenges in improving the labour market integration of millions in Latin America and the Caribbean who are not seeing the fruits of renewed growth. This is why it is important to learn the lessons arising from the policies implemented during the crisis to offset its impact on labour markets. With this third joint bulletin, ECLAC and ILO continue to pursue their objective of affording the region the information and analyses needed to face these challenges, as regards both trends in the region’s labour markets and the corresponding policy options.

The employment situation in Latin America and the Caribbean: Crisis in the labour markets and countercyclical responses

As predicted in the first bulletin, produced jointly by the Economic Commission for Latin America and the Caribbean (ECLAC) and the International Labour Organization (ILO), the impact of the economic crisis continued to be felt in Latin America and the Caribbean during the second quarter of 2009. Regional exports of goods and services contracted in response to sluggish demand on international markets, while remittances and foreign direct investment flows continued to fall, credit lost its buoyancy and the total wage bill diminished, owing mainly to job losses. As a result, the growth forecasts of many countries had to be adjusted downwards. Since the end of 2008, the countries of the region had started to implement countercyclical policies —albeit with significant differences— in an effort to use public spending to counter flagging investment and consumer-spending levels and boost aggregate demand. In this second bulletin, ECLAC and ILO show how the impact of the crisis has deepened in labour markets in the region in the first half of the year and examine existing options and the outcome of public-infrastructure and emergency employment programmes designed to mitigate the impact of the crisis on the labour market. The unemployment rate has risen in practically all countries compared with the previous year and this situation worsened further in the second quarter, when urban unemployment exceeded the rate of the corresponding period in 2008 by 1 percentage point (to stand at 8.5%, up from 7.5%), while in the first quarter, the variation was 0.6 of a percentage point. Labour indicators also point to an increase in informality, a decline in employment with social protection and a decrease in full-time employment. Labour-market trends observed in the first half-year, together with the forecast for a 1.9% decline in regional GDP in 2009, suggest that the average annual rate of urban unemployment in the region will be close to 8.5%. This forecast is slightly less pessimistic than the estimate given in the first bulletin; this is attributable to the fall in the participation rate in the first half-year to levels that are expected to remain low for the rest of the year. Without this reduction in the labour supply, due largely to the “discouragement effect”, the annual average urban unemployment rate would stand at between 8.8% and 8.9%. Thus, the open urban unemployment figure would increase by 2.5 million and if the “discouraged job-seekers” are included, then the number of additional persons not finding a niche in the urban labour market would climb to 3.2 million. In the region, as in the rest of the world, there are signs that the crisis may have reached bottom in the middle of the year. In many countries, production levels have ceased their decline and there are indications of an incipient recovery leading to cautious optimism that there may be a moderate upturn in labour markets in the fourth quarter. The pace of recovery will vary from one country to the next and is expected to be gradual at best. Even with the return to a growth path, there should be no illusion that the labour problems will immediately disappear. First, the recovery in employment is expected to lag behind the upturn in economic activity. Second, since economic growth is likely to remain moderate in the short term and well below the rates recorded between late 2003 and mid-2008, demand for labour and consequently the generation of good-quality jobs will continue to be weak. Thus, countries should not relax their efforts to defend and create decent jobs, but rather should take steps to improve the effectiveness and efficiency of available instruments. In this way, the region will be in a better position not only to confront the challenges of economic recovery, but also to strengthen the foundations for social inclusion and for advancing under more favourable conditions towards fulfilment of the Millennium Development Goals.

Employment Situation in Latin America and the Caribbean: Universal social protection in labour markets with high levels of informality

The Employment Situation in Latin America and the Caribbean is a twice-yearly report prepared jointly by the Economic Development Division of the Economic Commission for Latin America and the Caribbean (ECLAC) and the Office for the Southern Cone of Latin America of the International Labour Organization (ILO).

Latin America and the Caribbean in 2011 and Beyond: A conversation among Latin America and Caribbean Specialists.

For the first time in more than fifty years, the domestic and external conflicts in Latin America and the Caribbean (LAC) are not primarily ideological in nature. Democracy continues to thrive and its promise still inspires hope. In contrast, the illegal production, consumption, and trading of drugs – and its links to criminal gangs and organizations – represent major challenges to the region, undermining several States’ already weak capacity to govern. While LAC macroeconomic stability has remained resilient, illegal economies fill the region, often offering what some States have not historically been able to provide – elements of human security, opportunities for social mobility, and basic survival. Areas controlled by drug trafficking organizations (DTOs) are now found in Central America, Mexico, and the favelas of Rio de Janeiro and São Paulo, reflecting their competition for land routes and production areas. Cartels such as La Familia, Los Zetas, and Primeiro Comando da Capital (PCC-Brazil), among others, operate like trade and financial enterprises that manage millions of dollars and resources, demonstrating significant business skills in adapting to changing circumstances. They are also merciless in their application of violence to preserve their lucrative enterprises. The El Salvador-Guatemala-Honduras triangle in Central America is now the most violent region in the world, surpassing regions in Africa that have been torn by civil strife for years. In Brazil’s favelas and Guatemala’s Petén region, the military is leaving the barracks again; not to rule, however, but to supplement and even replace the law enforcement capacity of weak and discredited police forces. This will challenge the military to apply lessons learned during the course of their experience in government, or from the civil wars that plagued the region for nearly 50 years during the Cold War. Will they be able to conduct themselves according to the professional ethics that have been inculcated over the past 20 years without incurring violations of human rights? Belief in their potential to do good is high according to many polls as the Armed Forces still enjoy a favorable perception in most societies, despite frequent involvement in corruption. Calling them to fight DTOs, however, may bring them too close to the illegal activities they are being asked to resist, or even rekindle the view that only a “strong hand” can resolve national troubles. The challenge of governance is occurring as contrasts within the region are becoming sharper. There is an increasing gap between nations positioned to surpass their “developing nation” status and those that are practically imploding as the judicial, political and enforcement institutions fall further into the quagmire of illicit activities. Several South American nations are advancing their political and economic development. Brazil in particular has realized macro-economic stability, made impressive gains in poverty reduction, and is on track to potentially become a significant oil producer. It is also an increasingly influential power, much closer to the heralded “emerging power” category that it aspired to for most of the 20th century. In contrast, several Central American States have become so structurally deficient, and have garnered such limited legitimacy, that their countries have devolved into patches of State controlled and non-State-controlled territory, becoming increasingly vulnerable to DTO entrenchment. In the Caribbean, the drug and human trafficking business also thrives. Small and larger countries are experiencing the growing impact of illicit economies and accompanying crime and violence. Among these, Guyana and Suriname face greater uncertainty, as they juggle both their internal affairs and their relations with Brazil and Venezuela. Cuba also faces new challenges as it continues focusing on internal rather than external affairs and attempts to ensure a stable leadership succession while simultaneously trying to reform its economy. Loosening the regime’s tight grip on the economy while continuing to curtail citizen’s civil rights will test the leadership’s ability to manage change and prevent a potential socio-economic crisis from turning into an existential threat. Cuba’s past ideological zest is now in the hands of Venezuela’s President Hugo Chavez, who continues his attempts to bring the region together under Venezuelan leadership ideologically based on a “Bolivarian” anti-U.S. banner, without much success. The environment and natural disasters will merit more attention in the coming years. Natural events will produce increasing scales of destruction as the States in the region fail to maintain and expand existing infrastructure to withstand such calamities and respond to their effects. Prospects for earthquakes, tsunamis, and hurricanes are high, particularly in the Caribbean. In addition, there are growing rates of deforestation in nearly every country, along with a potential increase in cross-sector competition for resources. The losers might be small farmers, due to their inability to produce quantities commensurate to larger conglomerates. Regulations that could mitigate these types of situations are lacking or openly violated with near impunity. Indigenous and other vulnerable populations, including African descendants, in several Andean countries, are particularly affected by the increasing extraction of natural resources taking place amongst their terrain. This has led to protests against extraction activities that negatively affect their livelihoods, and in the process, these historically underprivileged groups have transitioned from agenda-based organization to one that is bringing its claims and grievances to the national political agenda, becoming more politically engaged. Symptomatic of these social issues is the region’s chronically poor quality of education that has consistently failed to reduce inequality and prepare new generations for jobs in the competitive global economy, particularly the more vulnerable populations. Simultaneously, the educational deficit is also exacerbated by the erosion of access to information and freedom of the press. The international panorama is also in flux. New security entities are challenging the old establishment. The Union of South American Nations, The South American Defense Council, the socialist Bolivarian Alliance, and other entities seem to be defying the Organization of American States and its own defense mechanisms, and excluding the U.S. And the U.S.’s attention to areas in conflict, namely Iraq, Afghanistan, and Pakistan – rather than to the more stable Latin America and Caribbean – has left ample room for other actors to elbow in. China is now the top trading partner for Brazil. Russian and Iran are also finding new partnerships in the region, yet their links appear more politically inclined than those of China. Finally, the aforementioned increasing commercial ties by LAC States with China have accelerated a return to the preponderance of commodities as sources of income for their economies. The increased extraction of raw material for export will produce greater concern over the environmental impact that is created by the exploitation of natural resources. These expanded trade opportunities may prove counterproductive economically for countries in the region, particularly for Brazil and Chile, two countries whose economic policies have long sought diversification from dependence on commodities to the development of service and technology based industries.

Risk, trust, and consumer online purchasing behaviour : a Chilean perspective

Purpose: The purpose of this study is to investigate Latin American online purchase behaviour with a specific focus on the influence of perceived risk and trust. While studies of this nature have been conducted quite extensively in developed countries, their application in developing countries, such as Latin America is limited. Our study addresses this gap in the literature with an empirical study conducted in Chile. Design/methodology/approach: The authors develop and test a proposed model of the influence of consumer’s perceptions of risk and trust on their attitudes and intentions to purchase on the Internet. An online survey method is used. The sample consists of 176 Chilean consumers who have made at least one purchase online. The data is analysed using structural equation modelling technique (SEM). Findings: The analysis revealed that of the perceived risk and trust factors examined, trust in third party assurances and a cultural environment of trust had the strongest positive influence on intentions to continuing purchasing online. Perceived risk had an inverse relationship with attitude and consumers’ attitude has a positive influence on intentions to purchase online. Trust in online vendors and a propensity to trust were both insignificant. Practical implications: Practically, these results identity which risk and trust beliefs towards purchasing online have the most effect thereby providing insights into how companies should seek to mitigate perceptions of risk to encourage new and return purchasers. Additionally, this research shows that consumers in a Latin American country, recognised as a collectivist, high risk avoidance culture, are willing to make purchases online despite the risks involved. Originality/value: The study and its results is one of few available that consider a Latin American context. The value of the findings provides insights into the specific risk and trust factors that influence Chilean consumers when considering purchasing online. The tested model adds value not only to the literature on Latin American consumer behaviour but also provides guidance for companies offering online retailing facilities in these less developed countries.

The role of the Internet on export market growth : an empirical study in Latin America

The Internet has been shown to positively influence the export activities of firms from developed countries. However, the literature is vague as to whether the Internet has an impact on the export market growth of firms form developing countries. This paper examines of a cross-national sample of 204 firms from a Latin American country (Chile). The results show that Internet marketing activities positively influence information availability and business relationships, which lead to an increase in export market growth. The findings indicate that the Internet influences not only information availability for export performance but also business relationships generally thought to be face to face interactions in nature.

From the assimilation to the acceptance of the other? : educational policy for indigenous peoples in Latin America and the 'intercultural bilingual education' policy in Chile. '¿De la asimilación a la aceptación del otro? : política educativa para pueblos indígenas en América Latina y la política de 'educación intercultural bilingüe' en Chile'.

Monográfico con el título: 'Desde la diversidad hacia la desigualdad: ¿destino inexorable de la globalización?'. Resumen basado en el de la publicación