South America: Recession Can Be Avoided
by Mark Weisbrot
Monthly Review

Can South America escape the wrath of the economic and financial storms that have their epicenter in the United States? Since the financial meltdown began in mid-September, the bond markets of most of the region (Brazil, Argentina, Colombia, Venezuela) have been hit, as well as most of their stock markets and a number of currencies. The steep drop in commodity prices in recent months has also reduced export and government revenue to a number of countries (Argentina, Brazil, Ecuador, Venezuela, Peru, Chile) where previously high prices of agricultural crops, minerals, and hydrocarbons has contributed to a growth spurt over the last few years. The old adage that “When America gets a cold, Latin America catches pneumonia” has been widely cited.

However, there is good reason to believe that South America, in particular, can weather this storm with minimal damage if it adopts the right macro-economic policies. First, these countries are not very much tied to the U.S. economy, which is in the midst of a deep recession. Exports from Brazil and Argentina to the United States, for example, are less than one percent of those countries’ economies. Second, the financial institutions of these countries, for various reasons, did not buy the toxic mortgage-backed securities and other “troubled assets” that have tanked US and even European banks, nor did they engage in the kind of over-leveraging and other risky practices that have brought down the U.S. financial system. Read the rest of this entry »