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21/01/2005 | Overview: After the Boom, Before the Bust?

WMRC Staff

The year 2005 may be viewed in retrospect as the 'neither/nor year' - neither witnessing the impressive economic performances of 2004, nor the momentous electoral contests lined up for 2006. In terms of GDP growth, 2004 has been the region's best year since the 1980s - with average expansion of more than 5.5%. Argentina, Uruguay and Venezuela all clocked up growth of 8% or more, while major players not benefiting from low bases of comparison - Brazil, Chile, Mexico, Peru - also performed creditably.

 

Indeed, only the tiny economies of Grenada and Haiti failed to post any growth at all. The benign global conditions that prevailed in 2004 are not going to dissipate completely and Latin America's boom will not turn to bust. However, the going is set to get tougher as world interest rates rise - dimming the allure of emerging-market assets. As growth rates in the juggernauts of the world economy slow, demand for Latin American products will decelerate accordingly. No country in the region is likely to post storming growth rates in 2005.

Political life in most major countries in the region will be dominated by electioneering. While Mexico's presidential poll is not scheduled to take place until July 2006, jockeying for position both within and between parties will intensify. The loser will ultimately be the government - and, in the longer term, the economy - as legislators once again fail to engage with the structural issues so crucial to the country's growth prospects. Coalition-building will be the name of the game in Brazil as President Luiz Inácio Lula da Silva strives to build congressional majorities for his reform programme. February's votes for the presidencies of each legislative chamber will be pivotal in this respect, and outcomes that favour the government could allow it to advance its agenda in key areas including labour reform.

The Andean countries will continue to be plagued by high levels of political turbulence, with Ecuador's President Lucio Gutiérrez, Peru's Alejandro Toledo and Bolivia's Carlos Mesa all struggling to maintain their positions. Continuity should also be the order of the day in Chile and Venezuela. In Chile, December 2005 may well see a member of the ruling Concertación coalition elected to succeed President Ricardo Lagos. In Venezuela, meanwhile, President Hugo Chavez is set to further consolidate his hold on power in July's legislative elections. 

Argentina has congressional elections three months later, with relations with the International Monetary Fund (IMF) and the restructuring of the sovereign debt set to remain high up the agenda. Electioneering could take hold in Colombia, too, now that President Alvaro Uribe has all but gained the right to stand again in 2006. Key reforms in areas such as taxation and social security are likely to be severely diluted or put on the backburner as deputies focus their attention elsewhere.

The Free Trade Area of the Americas (FTAA) was supposed to finally see the light of day in 2005. Yet this project remains some way from realisation. Various bilateral and multilateral initiatives may come to fruition, however, widening and deepening trade links within the region and beyond. Most likely is the signing of a free-trade agreement between Colombia and the US. Negotiations are currently under way between Colombia, Ecuador and Peru on the one hand and the US on the other. Nevertheless, disputes between US-registered companies and the Ecuadorian and Peruvian governments - as well as strong popular opposition - may well prevent these two striking a deal with the North American giant. Similarly, there will be various conferences and summits both within and between the Mercosur and Andean trading blocs. Nevertheless, integration will likely remain a piecemeal and patchy process as rivalries and domestic priorities render negotiations arduous. Finally, 2005 will be the year when the fate of the Central America Free Trade Agreement (CAFTA) is decided. The text of the agreement has been finalised. It now remains for individual governments, including - crucially - the US, to decide whether or not they wish to sign up to it.

Raul Dary
24 Hartwell Ave.
Lexington MA 02421 USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

www.globalinsight.com and www.wmrc.com

WMRC (Reino Unido)

 



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