Latin America

‘Tepid’ growth for Brazil, as Mexico mulls oil reform

Latin America, a major source of international trade and tourism for Miami, is expected to show a mix of economic results in 2014, according to a panel of international economists and experts meeting in Miami Friday. Panama, Peru, Colombia and Chile are registering the strongest GDP growth, while Brazil, Latin America’s largest economy, is stuck in an economic malaise.

With a population of more than 195 million, Brazil will generate “tepid” economic growth of about 1.8 percent next year, said Armando Castelar, a leading Brazilian economist and coordinator of applied economic research at the Getulio Vargas Foundation’s Brazilian Institute of Economics. This is down from an estimated 2.47 percent this year and comes after years of robust GDP expansion due to high prices for commodity exports.

“The economic policy of President Dilma Rousseff has been a failure, but the situation is not bad enough to generate major economic policy changes,” he said.

Earlier this year, tens of thousands of Brazilians took to the streets in violent protests against everything from high bus fares to government corruption. But despite the country’s poor GDP performance, unemployment remains low at 5.4 percent and inflation stands at just below 6 percent, Castelar noted. If current policies are continued, he added, “There definitely will be lower economic growth in Brazil in the coming years — around 1 percent to 1.5 percent.”

Speakers at a conference on Latin America’s 2014 economic outlook sponsored by the University of Miami’s Center for Hemispheric Policy also said the region in general should remain stable politically and generate good economic results in 2014, except for Venezuela and Argentina, which are headed for crises in 2014 and 2015.

Venezuela, despite its multi-billion oil exports, is experiencing widespread shortages of food and other consumer goods, has accumulated huge debts and suffers inflation estimated at about 50 percent.

“Increasing inflation will have a major impact on the government,” said Alberto Bernal-León, head of research and partner at Bulltick Capital Markets Miami. “Chávez and his 21st century socialism have committed the biggest robbery in history” by looting Venezuela, Bernal-León said, referring to the economic policies of President Nicolás Maduro and his predecessor, President Hugo Chávez, who died of cancer earlier this year.

Argentina, another large South American economy is also in trouble due mainly to government mismanagement and excessive controls, said Juan Luis Bour, chief economist and director of the Latin American Foundation for Economic Research in Buenos Aires. Bour expects GDP growth of about 3 percent this year, falling to 1 percent in 2014. Inflation this year will be about 25 percent and will be in that range or higher next year. The Argentine government for years has stated that inflation is only 10 percent.

“Current government economic policy is wishful thinking,” Bour said. “It amounts to economic malpractice.”

Mexico, the region’s second-largest economy with more than 118 million people, has seen its GDP slow to about 1.5 percent this year, down from a projected 4 percent, said Bernal-León. The economic decline was due to a failure to carry out major construction projects, lower government spending and weak demand for Mexican goods from the United States.

“Energy reform is critical for Mexico and next year will be make or break for the country,” he said. The Mexican government is currently discussing a reform that would allow international companies to work directly in Mexico’s petroleum sector. Foreign companies have been banned from investing in oil since the petroleum industry was expropriated in 1938.

Comparing the Mexican government’s decision on energy reform to the movie The Godfather, Bernal-León said that Mexico’s future depends on whether the PRI, the ruling political party in Mexico, “acts like Michael Corleone (the strong son of the Godfather), or like Fredo, (the weak and passive son).”

He added that if this reform is approved, foreign companies will invest billions of dollars in the Mexican petroleum sector.

“And I believe there is an 85 percent chance that the reform will be approved,” he said.

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