Current economic indicators suggest Latin American states will maintain GDP growth throughout 2007, avert historical inflationary pressure, maintain and possibly decrease unemployment figures, and increase real wages while simultaneously maintaining public finance growth.
However, TRC remains concerned that democratic political setbacks in 2006, increasing criminality and insurgencies in several states, and the reliance of many Latin American economies on local commodity exports threatens the long-term development of the region.
TRC anticipates the continued political polarization of Latin America between states espousing democratic governance and free-market economic principles and those seeking greater control of national economies through nationalization and closed economies. The Venezuelan and Bolivian governments will continue their processes of nationalization, regaining considerable majority control of their countries? mining industries, telecommunication sectors, and electricity industries. Additionally, political dissent will continue to be repressed so as to avoid large-scale public indignation.
Additionally, international investment confidence in both Brazil and Colombia remained subdued as a result of growing criminal and insurgent organizations. Although Colombia experienced its highest growth rates in over 13 years during the fourth quarter of 2006, private investment in the country is tempered due to the continuation of FARC insurgent attacks and a robust narcotics industry. Likewise, Brazil experienced moderate economic growth in 2006 and is expected to so again in 2007; however, civil unrest associated with the Sao Paulo-based First Capital Command group and the Rio de Janeiro-based Red Command drug trafficking cartels are troublesome to international investors. Both states are seeking to curb these insurrections with notional success thus far.
According to The Economist, economic growth in Latin America is largely dependent on high prices for the region?s commodity exports and on remittances from citizens living and working abroad. Should commodity prices collapse, which is a common occurrence in the boom-bust cycles associated with commodity exports, local economies could falter, causing ripple effects throughout other sectors of the Latin American economy.
Moreover, the ability of Latin American countries to maintain heterodox economic policies?balanced public finances, orthodox monetary policies, and decreasing public debt–will go along way in determining the region?s future economic growth. Already, it appears many Latin American states, including Brazil and Mexico are reluctant to abide by strict fiscal policies and are planning to increased public spending through tax cuts and minimum wage increases.
International investors remain confident that Latin American development and economic growth will continue through 2007, however, TRC remains concerned that political authoritarianism, local and regional insurgencies, international narcotics rings and shortsighted economic adjustments could thwart any long-term growth potential in these countries. Unfortunately, historical precedence suggests sustained growth, declining inflationary numbers, and real-wage increases will be short lived.
