TRADE-GERMANY: Investors Urged to Engage in South America

By IPS Correspondents Reprint | | Print |

Ramesh Jaura

HAMBURG, Feb 10 2000 (IPS) - A new study by a German bank has predicted an upswing in Latin America’s economy this year and has urged potential investors to engage themselves in the region describing it as “a worthwhile investment”.

‘Prespectives in Latin America’, a 42-page report published by the Dresdner Bank Latin America, with headquarters in Hamburg, Germany, was made available to IPS this week.

The report analyses the economic and financial performance and prospects of 12 countries in the region, maintaining that, on the whole, “economic upturn is growing firmer”.

“We expect a GDP (Gross Domestic Product) growth rate of about three percent, which will largely be possible thanks to a recovery in export prices and growing net capital imports,” says Heinz Mewes, the bank’s chief economist and a co-author of the report.

However, the performance and prospects of individual countries in the region are expected to be uneven, varying from one economy to another.

A case in point is Argentina. GDP there is expected to expand by no more than 2.8 percent. “One reason for this ‘meagre growth’ in the short term is the stability-oriented fiscal policy being pursued by the government,” argues Guenter Koehnen, an economist of the Dresdner Bank group.

The Argentine fiscal policy is aimed at curtailing public sector demand as a result of spending cuts and straining consumer and capital spending on account of higher tax burdens.

“However, such an austerity course will result in a considerable improvement in the economy in the second half of the year and particularly beyond 2000, provided that it is implemented credibly,” says Koehne, taking an optimistic view of things to come.

As of mid-year, growth will pick up thanks to a further drop in unemployment and the greater inflow of foreign capital, he adds.

“The crisis is over,” captions the report in its chapter on Brazil. “After the Brazilian economy managed to overcome the crisis year 1999 better than expected, we are optimistic about the year 2000,” declares the study by the Dresdner Bank Latin America, which has branches in 16 countries of the region.

Both on the domestic market and in the external sector, Brazil’s economic leadership has set the stage for the current disequilibrium to be eliminated or at least reduced, writes another Dresdner Bank analyst Walter Schaefer.

With the world economic climate improving, predicts Schaefer, Brazil will post a trade surplus – of some three billion US Dollars – this year and the presently tight foreign exchange position will ease.

“However, Brazil’s good prospects must not induce politicians to allow the country’s reform efforts to be neglected,” warns Schaefer.

In fact Brazil would need this year not only to reduce its budget and current account deficits but also introduce wide- ranging tax and structural reforms, covering the social insurance system.

“Only if this is accomplished, will it be possible to stabilise the Brazilian economy on a sustainable basis,” maintains the bank report.

Turning to the Andean region, the bank report declares: “Chile is ready for a new upturn.” According to the report, recently there has been an increasing number of indicators to suggest that Chile is at the beginning of a marked phase of growth.

Following the election of socialist Ricardo Lagos Escobar as country’s President on Jan 17, the report does not anticipate any changes in the country’s stability-oriented economic policy. Escobar is scheduled to take charge next month.

Reiterating its trust in Lagos, the bank says: “As minister of education and subsequently of construction, Escobar proved that he is not intent on following a course hostile to the economy. The recent appointment of renowned market economists to his team confirms this assessment.”

Turning to Peru, the report says, the Dresdner Bank Latin America is expecting President Alberto Fujimori to win the forthcoming elections on April 9.

“What will Fujimori’s victory, which at this stage looks to be considerable, mean for the Peruvian economy?” asks Thorsten Ruelle, another co-author of the report.

The answer is honest, though revealing: “In spite of the latent risks to the democratic system, we think that it is preferable, from an economic point of view, for Fujimori to gain a clear mandate to continue stablity policies and intensify structural reforms rather than risking a close victory by a fragile anti- Fujimori coalition.”

However, warns Ruelle, to ensure the inflow of foreign capital, the new – and old – president will have to return to the accustomed policy of fiscal austerity after the election at the latest.

Fujimori will also have to clearly state that at the end of his third final tenure as president he is committed to poviding assistance with a change of government in accordance with democratic rules, adds the report.

Commenting on the Peru chapter of the report, an independent analyst Winfried Illo Graff said, “The bank – and other investors – obviously wish to ensure that they remain on the winning side.”

An analyst at Bonn-based Non-Governmental Organisation, the Global Cooperation Council, Graff adds: “While it is extremely cynical to place investors’ self-interest on top of commitment to democratic values, we can draw comfort from the fact that democratic values are not being consigned to the dustbin.”