Latin America weathered myriad economic crises and recessions between 1998 and 2002 that ultimately resulted in large currency devaluations in countries such as Brazil, Argentina, Chile, and Columbia.
However, according to de la Fuente, these countries “suffered large movements in their currencies just as commodities were beginning to rise. As export prices were rising, they also had incredibly competitive exchange rates.”
Commodities have posted a huge bull run over the past several years, with the Reuters-CRB Index recently hitting a 20-plus year high in March 2005 at the 320.00-level. That index includes 17 commodities, including soybeans, orange juice, coffee, and copper, all which are exported by Latin American countries.
Strengthening worldwide commodity prices has been a critical growth engine for Latin American countries in recent years, helping to pull their economies out of recession. Many Latin American economies are commodity- based and export-driven.
“We’ve seen a change in the terms of trade, or the prices a country gets for its exports,” explains Alberto Bernal, chief Latin American economist at Ideaglobal. “It started happening in 2003 and implied a very important wealth affect. More dollars were going into those economies. It was a positive external factor which trickled down to the rest of the economy.”
The 2005 GDP forecast for the 11 largest Latin American economies is $2.06 trillion, up substantially from $1.57 trillion in 2002, according to Bernal.
Chile exports copper, Brazil exports grains and paper, Mexico exports oil, Argentina exports grains and oil, and Venezuela exports oil. In recent years, many commodities have been rallying across the board, which has translated into more dollars into these Latin American economies and, ultimately, more disposable income for their governments and consumers.
“The recoveries have gone from being export-led to domestic demandled,” de la Fuente says.
Chile, the largest copper producer in the world, exported $1.621 billion worth of the red metal in March 2005, a 16.1-percent increase over the same period a year ago. The Chilean government copper commission has said overall copper production is expected to be up 2.6 percent in 2005 at 5.554 million tons.
Copper prices have been rallying substantially in recent years, hitting their highest level in 16 years, driven in large part by strong demand from China. Nearby futures prices traded in New York have skyrocketed from as low as 60.40 cents per pound in late 2001 to as high as 155.00 cents per pound in April 2005.
Higher copper prices have had an extremely positive impact on the Chilean economy, resulting in a 6.1 percent gross domestic product reading in 2004, it’s strongest in seven years.
Brazil posted a 5.2 percent GDP rate in 2004. The U.S. Department of Agriculture has projected a record soybean crop for Brazil this year at 54 million tons, and of that, 20.25 million tons are slated for export.
However, overall Brazilian export income is expected to be down 18.3 percent in 2005, according to the Brazilian Oilseeds Association. Crop damage because of drought should result in overall soy product exports to total $8.2 billion in 2005, down from $10.4 billion in 2004. Although soybean priceshave fallen from the multiyear highs in mid 2004, current prices still are well above 1999 to mid 2002 levels.
Meanwhile, roughly 15 percent of Mexico’s total export income comes from crude oil, according to Bernal. The state-owned oil company called Pemex has benefited from the crude oil price surge.
“The government has more money it can spend on infrastructure,” he says.
Crude oil prices soared from below $20 per barrel in late 2001 to about $58 per barrel in April 2005 before pulling back to around $50 in May. Mexico’s GDP totaled 5.2 percent in 2004.
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