Latin America not to be immune to financial crisis, but to somehow weather

MEXICO CITY, Dec. 13 (Chinese media) -- It is increasingly evident that Latin America is unlikely to be immune to the spreading world financial crisis and its economic growth is expected to slow down a bit in 2009. The region, nevertheless, would weather this crisis significantly better than in the past, analysts say.

As the mid-2007 subprime mortgage debacle in the United State has developed into a global financial turmoil, the worst since theGreat Depression, the Latin American region has been struggling tocurb its wave.

Latin America, which has seen an average yearly growth of 5.45 percent from 2004 to 2007 and is expected to increase by 4.5 percent this year, is likely to slow in its growth markedly in 2009, according to the International Monetary Fund (IMF).

The IMF predicted that the region's growth in 2009 is likely toslip to 2.5 percent, and Mexico, a major economy in the region, could have the worst situation with a minus 0.9 percent.

FALL IN COMMODITY PRICES, EXPORT

The key drag is the fall in commodity prices, according to the World Economic Situation and Prospects 2009 released by the UnitedNations recently.

As falling commodity prices at international markets usually hurt primary exporters the hardest, Latin American countries, which take the export of primary commodities as a driving force for their growth, have suffered a heavy blow when the demand in their major export destination, the United States and Europe, has dropped by a big margin.

One such victim is Chile, the world's major copper and nickel exporter. Its fiscal income has dramatically shrunk as the price for nickel has declined by 59 percent and that for copper hit the lowest in three years.

Another victim is Brazil, which is already facing severe curtailments in access to trade credit. Oil exporters such as Venezuela, Mexico and Ecuador are also among the hard hit.

CAPITAL OUTFLOW, CURRENCY DEPRECIATION

According to World Economic Situation and Prospects 2009, the region remains very vulnerable to an aggravating global credit crunch, particularly a sharper reversal of capital inflows.

Currencies in such countries as Brazil and Mexico have depreciated against the U.S. dollar substantially since mid-2008, also driving up capital outflows.

For the region's economies, the cost of external borrowing has risen considerably and capital inflows are reversing, which has consequently worsened the financing condition for enterprises, especially the small and medium-sized ones.

The Inter-American Development Bank (IDB) warned recently that as more and more small and medium-sized enterprises, which contribute some 35 percent to the region's total GDP (gross domestic product), are to be pushed to the edge of live-or-die, the region's economic prospect will be also put on a cliff.

EXPECTED TO SOMEHOW WEATHER CRISIS

As IDB President Luis Alberto Moreno put it, the region is better armed than the Untied States and Europe in the fight against the financial crisis.

Many analysts and institutions predicted that the region, though deep in trouble, will somehow weather the crisis significantly better than in the past given the notable improvements in its macro-economic and financial policies, greatereconomic diversification and reduced net dependency on external capital inflows.

Latin America, which experienced several economic turmoils in the past decades, has boosted its macro-economic measures in recent years.

According to the Latin American Banking Federation, the region has markedly enhanced its counter-risk ability by improving financial mechanism and risk management.

Meanwhile, the vast amounts of foreign reserves accumulated by countries in the region, which have increased at an annual rate ofover 10 percent in recent years and reached some 460 billion dollars, provide a buffer and allow some space for counter-cyclical measure.

The share of foreign debt in the GDP has also been sharply reduced with a less dependency on foreign capital.

Brazil, for example, was the largest debtor at the beginning ofthis century but its foreign reserves has now surpassed its debt.

In addition, the region's booming trade with emerging economieshas diversified its foreign commercial ties, making it less dependent on the United States and Europe, analysts said.