Best Essay Writing Service on An overview of Latin America

An overview of Latin America

The prospected growth for Latin America deteriorated yet again in the fall of November this year. As explained by Abreu, this is the fifth consecutive downhill drift to the regions economic position for 2015 (p. 15). Latin focused panelists trim down their projection by 0.2% but still expect the regional GDP to increase by 2.3% in 2015. As Nicita illustrates, forecasts predicts lower growths projections for Chile, Brazil, Colombia, Peru, Ecuador, Uruguay and Venezuela. Some countries remain unaffected, like Paraguay, Mexico and Bolivia. Argentina is the only economy that the economic panelists raised their projections despite the fact that it is still expected to experience two consecutive years of recession. Recovery from this recession remains timid in the midst of major backdrops in the recent dynamics of oil pricing and mixed developments of advanced economies (p. 83). The pliability of the United States to run the swiftness of recovery straightforwardly affects the rate of resurgence from a recession.

Spinning the focus back to Latin America, the levels of growth of the two most energetic economies in Latin America continues to lessen; in Mexico and Brazil. In Brazil, President Rousseff Dilma is projected to revolutionize her economic guidelines. With the new presidency in place, many analysts expect that Dilma Rousseffs’ administration will be able to perk up the uninspiring economy. Latin America economic analysts project that Brazil’s GDP is expected to increase by a timid 1.1% in 2015, against the earlier estimated figure of 1.3%. In Mexico, the rate of economic recovery has been very slow in the first six months of the year, but seems to be gaining traction in the second half. This is another beneficiary of the efforts by the United States to perk up economic performance. As emphasized by Williamson, the administration of President Enrique Pena has taken measures towards the implementation of the energy sector reforms. Latin economic forecasters expect Mexico’s economy to augment by 2.4% this year before accelerating to 3.7% in 2015. These figures are unchanged from the earlier forecasts made in October (p. 47).

In Venezuela, the government recently presented the 2015 budget that was characterized by gross miscalculations. The budget was drafted assuming that the oil would be trading at 60USD per barrel in 2015, but the economic analysts forecast the value will be 78USD per barrel. As Carol maintains, this will have to make the government channel more funds from other sources. However, the Venezuelan government projects Latin Americas growth to be 3.0% in 2015. On the flip side, the Latin economic analysts project the value at 2.0% despite the fact that it too is expected to register a two year period of economic contraction. Inflation in Latin America has amplified in this month of November. Latin America economic analysts predict that the rate of inflation in this region will be 12.4% by the end of the year. Economic panelists project a higher value, factoring in Venezuela’s and Argentina’s increasing inflation prospects.

Facts about Argentina

Williamson remarks that Argentina has a GDP of more than 510 billion dollars, making it one of the prevalent economies in Latin America (p. 47). Its economy is characterized by its natural resources, and boasts of being the region’s leading producers of food, owed to agriculture and cattle rearing. Argentina is indeed one of the largest exporters of beef in the world, and the top producer of lemons, soybean oil and sunflower crops. In recent years, Argentina has experienced remarkable growth in textile and automotive industries. The country has matured progressively and has heavily invested in education and health, responsible for 8% and 7% correspondingly of the GDP. The number of middle class enlarged substantially from 35% to 54% of the broad population (Dicken, p. 172). The government of Argentina prioritizes social spending with the help of various programs, which includes the creation of Universal Child allowance that has over 3.7 million children beneficiaries and adolescents up to 18 years. This bracket constitutes 10.3% of the populace, as Bethel explains (p. 114).

Abreu goes on to explain that the areas economy’s peripheral sector faces potential challenges (p. 16). Estimates for the first six months of 2013 were 0.1%, while the forecast for 2014 range from -1% to -1.8. During the first half of 2014, the country’s fiscal accounts indicated a surplus of 0.2% of the Gross Domestic Product as well as a deficit of 0.9%. There are coarse discrepancies in distribution of wealth and income in Argentina. In 2001, the moneyed 10% of the population earned 40% of the country’s income, and the destitute 10% earned 2% of the revenue. Roughly 36% live beneath the paucity line. About 20% of the population lives on less than two dollars a day; with over 8 million working in the informal sector (black market) (Nicita, p. 82). These menial paying jobs are not regulated by the government, so the people are in a position to earn higher wages. The government approximates that 12% of the populace cannot meet up the fundamental desires like food. Women comprise of 60% of those employed in the informal sector, which means that their poverty rates are twice that of men. Additionally, over 54% of the offspring under the age of 15 survive in dire poverty.          

Inflation and devaluation of currency in Argentina

What are the causes?

Williamson points out that the value of the Peso plunged by around 15% on the 23rd of January this year. According to news by Bloomberg, the peso has since stabilized despite the fact that it dropped by a total of 19% in January. Latin economists and analysts hold onto the notion that this stems from the decisions that the president and her government implement (p. 48). The code of Argentinean government is “popularity and nationality”; policies that cater to the needs of the masses. Many Latin economists insist that munificent societal spending after an economic disintegration like freezing domestic electricity rates encourage energy consumption, which consequently increases the country’s reliance on imported energy. This erodes the hard currency reserves initially stocked by the governments piggy bank; central bank. This is what leads to inflation, as is the case with Argentina. Inflation in Argentina has become an issue that raises heated debates, because the state officials are said to be intentionally transmitting the wrong information to the public by insisting that it was 10.8%, while the Latin economical analysts estimated it to be at 28% in the 2013.

With the soaring levels of inflation, President Dilma Kirchner overhauled the whole economic docket in her government placing two young officials that are closely associated with her. During these times, the president was never available to provide answers to the Argentines who were fuming seeking explanations as to why the sudden shifts in economic policing. The pretext she used to give for her constant absence from the public was the surgery she underwent a surgery to drain a blood clot near her brain. The cause of the clot was never explained, partially why the Argentines were irked terming her excuse as non-existence claiming that she elected her allies to hide her “behind the scenes” theatrics on her running of the government.

Her ratings sharply nosedived to an approval rating of 27% in January from 42% in November. Nonetheless, this transpired prior the peso catastrophe. To add salt to the injury, her sudden amassing of wealth ever since her husband came to power in 2003. Only a decade ago, the Kirchner family was worth 2.5 million dollars, majorly contributed to property dealings from Patagonia. In 2010, their disposable worth had burgeoned to more than 21 million dollars. Mrs. Kirchner also declared 50% and 25% stakes of ownership in more than 27 property companies in Buenos Aires and the province of Santa Cruz. When she was asked about the drastic rise in her wealth after a televised conference at Harvard University, she said that she was investigated by the judiciary and they found no irregularities and thus termed herself a “successful president”. Argentines argue that she must be having something to do with the soaring rate of inflation in Argentina. They argue that the economic policies are in her favor, bulwarking this argument with the fact that she employed her close allies to the Ministry of Finance in Argentina. Thus, it is clear that the economic tribulations in Argentina are engineered by the President herself, and her impropriated economic policies in play. 

Ramifications of peso devaluation and inflation in Argentina

It is evident that the economic turmoil that Argentina has been going through has made it become a symbol of economic discourse among developing countries. Among the myriad of fears arising from the devaluation and inflation in Argentina, is the fear that the demand of commodities that come from Argentina is weakening in markets like China. This is an actual slowdown that could lead to the meltdown of developing nations. The all time powerful Brazilian automobile industry is bracing for tribulations that stem from Argentina.

The whole world is worried about what might happen to the markets if they enter in a period characterized by a slump in the prices of commodities. Just recently, travel agents reported that quite a substantial number of airlines have stopped selling tickets, while some have made available a limited number of seats. Their major worry is that the airlines have over 3.3 billion in revenue, stacked in Venezuelan banks that the state has not granted them the chance to take out of the country. The chief contention being that the worth of that wealth could significantly shrivel unexpectedly. To curb the menace of inflation and peso devaluation, the Venezuelan government puts new limits on the dollars it sells to citizens travelling abroad, with a value of 700 dollars to Florida and 2500 for travelers going elsewhere in the United States.

After recovering from a grand slump in 2002, the social spending like halting the domestic electricity rates as well as making payments for the poor amplified the already existing deficit in Argentina’s economy. For this reason, Wittekind notes that the administration had been printing money, toting up fuel to the inferno of inflation. When currency is printed to a point that the supply is greater than its demand, the resultant effect is that the value of the money will drastically diminish (p. 109). The government, in addition, has nationalized companies like YPF which has made investors pull back. Some financiers have gone to the point of channeling their funds out of Argentina. This is the major explanation as to why the Argentinean Foreign Direct Investments have been dwindling all over the years.

As Abreu indicates, to prevent the exodus of investors, the Argentinean government has restricted access to foreign currencies. Just last week, after a near 20% drop in the value of the peso, announced that it will allow people greater access to dollars. Alex Kicillof, the economy minister of Argentina said that “this is one of the ways the government is trying to tackle the issue of inflation” (p. 15). The food prices have soared to unexpected levels, with some foodstuff having their prices increased by over 50%, while household appliances shot up by 35% and car sales are at a standstill. Many ordinary items that people need for everyday life are no longer available on the shelves of the supermarkets because the producers cannot cover the production overheads. Imported products or ingredients are too expensive, because they are paid for in dollars, whose reserve in Argentinean banks is already running dry. It is evidential that the governments’ ideologies are becoming its worst adversary (Dicken, p. 167).       

Protectionism in Argentina

Argentina is one of the principal users of defensive procedures and has often been accused by its trade partners as being “high level protectionists”. In the past months, the Argentinean government has put into place a number of strategies to bar foreign investors from accessing the country and its resources. This deed instigated with the re-nationalization of YPF, the Argentinean national Oil and Gas Company. In the past, Argentina had employed industrial policies that resulted to import-substitution. Consequently, the country was sidelined from the world trade, which led to the country facing the worst social and economic crises.

Carol emphasizes that import substitution is a government stratagem that accentuates the replacement of some industrial and agricultural imports in an effort to boost up local production for the consumption of the locals, rather than producing for the export markets (p. 77). She goes on to explain that these substitutes to imports are meant to reduce foreign exchange demand and generate employment, stimulate innovation, consequently making the country self-reliant in terms of defense, advanced technology and food (p. 78). Argentina’s strategy to back on an export-driven economy growth was based on political rather than economic considerations. The government, alongside powerful lobbies blocked all the attempts made to liberalize the economy of the country. This resulted to deterioration of the Argentinean economy, which saw the conversion of one of the world’s once strongest and wealthiest economy into a third world country with considerable social and economic tribulations.

Latin economists have noted that successive Argentine governments deliberately distorted producing prices by setting high export duties and import tariffs and maintaining dual exchange rate mechanisms. These distortions changed the normal process of resource allocation, which sequentially affected the political equilibrium. The country’s import-substitution strategy led to the devastating social and economic crises that Argentina went through between 1999 and 2001. This strategy was dismantled after substantial erosion of the country’s economy. What resulted was that the manufacturing sector experienced growth and exports increased up until the early 2000s. It was much later in 2005 when inflation grew tenfold and the surplus declined.

In response to these negative economic indicators, Argentina’s President Cristina Kirchner revised the industrial policy and put measures into place to cushion the country’s agricultural and industrial sectors from the fast growing international competition. According to the European Commission, Argentina is the world’s principal user of trade prohibitive measures, which contrasts the views of the G20 summit to keep any trade barriers at bay. The recent obligation of a “non-automatic licensing” on all Argentinean imports has greatly tarnished the investment and trade outlook of the South American country.       

Works cited

Abreu, Marcelo De Paiva. The Political Economy of Protectionism in Argentina and Brazil, 1880-1930. Rio De Janeiro: Pontifícia Universidade Católica De Rio De Janeiro, Departamento De Economía, 1993. 14-17.

Bethell, Leslie. Latin America: Economy and Society since 1930. Cambridge, United Kingdom: Cambridge UP, 1998. 112-119.

Dicken, Peter. Global Shift: Transforming the World Economy. 3rd ed. New York: Guilford, 1998. 165-198.

Nicita, Alessandro, and Hiau Looi Kee. Is Protectionism On The Rise? Assessing National Trade Policies during the Crisis of 2008. Washington, D.C.: World Bank, 2010. 78-90.

Williamson, John. Inflation and Indexation: Argentina, Brazil, and Israel. Washington, DC: Institute for International Economics ;, 1985. 44-48.

Wise, Carol. Exchange Rate Politics in Latin America. Washington, D.C.: Brookings Institution, 2000. 36-84.

Wittekind, Erika. Argentina. Edina, Minn.: ABDO Pub., 2012. 99-112.