The financial crisis that crippled much of Asia in 1997 destabilized financial markets in both developed and developing countries. As a result, Latin American growth, measured in real gross domestic product (GDP), fell from 5.4% in 1997 to 2.3% in 1998. The region’s difficulties were compounded by natural disasters that struck with unprecedented strength. However, given Latin America’s macroeconomic stability and commitment to free market policies, economic projections for the year 2000 are favorable — generating new opportunity for U.S. exporters and investors.

Improved Economic Fundamentals Prevail

Latin America has enjoyed much economic success this decade. From 1991 through 1998, its GDP growth averaged about 3.5% per year, more than three times what it was in the 1980s. And its inflation rate registered 15.6% last year, a massive drop from the more than 400% incurred on an average annual basis during the 1980s.

The economic situation today represents a real departure from the past, which was characterized by soaring inflation, high fiscal deficits, inefficient public sectors and excessive regulations. Recent events have proven the region’s current economic fundamentals to be stronger. Latin America has resisted the shocks caused by the Asian and Russian financial crises, which resulted in falling export values and reduced access to external financing. Yet, it did experience damage caused by El Niño and Hurricanes George and Mitch. And, it is still challenged by heavy external debt servicing and its dependence on foreign inflows of capital.

Trade and Investment is Up

Latin America’s economic strength has benefitted U.S. companies and workers. For example, from 1991 through 1996, U.S. exports to Latin America rose 200%, jumping from $47.8 billion to over $142 billion. And the future is even brighter. To exemplify this, U.S. Commerce Secretary William Daley, who scheduled his first trade mission to Latin America, stated that the region’s markets are among the fastest growing in the world, offer increasing opportunities, and are very important to U.S. exporters.

In 1997 (the most recently available data), the U.S. direct investment position in Latin America and the Caribbean, on a historical-cost basis, was almost $172.5 billion. This represented an increase of 17% over 1996, and was 21% higher than U.S. direct investment in Asia and the Pacific. These figures indicate a strong level of confidence in Latin America.

Mexico’s Economy Proves Resilient

Mexican inflation, which reached 27.7% in 1996, continues to decrease and registered 13% last year. It is projected to fall below 11% this year. Mexico’s GDP growth reached almost 7% in 1997, the highest in 16 years; however, the global slowdown did limit Mexico’s growth in 1998 to 4.8%.

Projections for this year are slightly less, but are anticipated to rise in 2000. Overall, the Mexican economy has performed better than anticipated in light of global economic conditions, especially the Brazilian currency devaluation.

Top 10 Leading Export and Investment Opportunities in Mexico

Mexico offers tremendous export and investment opportunities. These include:

• Automotive parts and supplies
• Building products
• Franchising
• Telecommunications equipment
• Computers and peripherals
• Pollution control equipment
• Water resources equipment and services
• Food processing/packaging equipment
• Industrial equipment and supplies
• Security and safety equipment.

NAFTA Five Years Later

The North American Free Trade Agreement (NAFTA) has fostered much growth in cross-border trade and investment. In its first five years, NAFTA reduced the average Mexican tariff on U.S. goods from 10% (which existed in 1993 prior to NAFTA) to about 2% today. As of September 1998, Mexico became the United States’ second largest export market; Canada remained number one. This positive relationship has improved the competitiveness of U.S. companies and has helped keep high-skill, high-wage jobs in the United States.

Brazil’s Economy Is Rebounding

The impact of the Russian crisis, followed by the collapse of the Brazilian currency, the real, has severely impacted the Brazilian economy. Brazil’s GDP growth in 1998 was flat and is projected to decrease this year. However, an improvement in recent months has resulted in cautious optimism. Assuming the structural and fiscal reforms continue and private industry becomes more competitive, the country’s GDP growth should recover and rise by 2.5% next year.

Opportunities Exist in Brazil

From 1994 to 1998, U.S. exports to Brazil increased by 87%, topping $15 billion. Today, Brazilian sectors representing sound opportunities for U.S. exporters and investors include: medical, telecommunications, pollution control, automotive equipment, computer hardware and software, oil and gas field machinery, franchising, aircraft and parts, cosmetics and toiletries, and building products.

Argentina Is Struggling

Argentina has been hit hard by the Russian and Brazilian crises. After years of growth, economic activity decreased there mid-1998, reflecting a decline in international inflows, higher interest rates, and a drop in export demand. In 1998, Argentina’s GDP growth reached 3.9%. It is expected to dip this year by about 3%. Yet, assuming Brazilian import demand increases, Argentine growth should rise in 2000.

U.S. exports to Argentina in 1998 rose by 32% over 1994, reaching almost $6 billion. The auto parts, telecommunications, computer, construction, tourism, plastics, electrical power systems, mining, insurance, and medical industries are leading sectors for U.S. exports and investment.

Chile’s Future Partly Dependent on Copper

Chile is an outstanding example of how free trade policies can generate economic growth. Its economy has expanded for more than a decade, achieving the highest growth rate in the region. However, with decreasing export values, especially copper, Chile’s GDP growth is expected to decline this year, falling from 3.4% in 1998. But, assuming world copper prices stabilize, Chile’s growth could reach 3% in 2000.

In Chile, the leading sectors for U.S. exports and investment include medical, telecommunications, pollution control, electrical power, security, and port equipment, as well as building materials, tourism, plastics, and computers.

Venezuela and Colombia Try to Cope

With the drop in commodity export values, especially oil, the Venezuelan economy has suffered. GDP growth, which was slightly negative last year, could decrease 5% this year. But, assuming the recent world oil price recovery is sustained, it could generate 4% growth in 2000.

Colombia is in a similar situation. Its GDP growth in 1998 was .6%, but is likely to fall by 3.5% this year. Although, assuming world oil and coal prices stabilize, among other commodities, Colombian growth could jump 2% in 2000.

Long-term Outlook Appears Positive

Although many Latin American countries will experience little growth in 1999, we believe the longer term outlook is bright.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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