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Foreign Investment: Is Latin America decoupling?

Posted April 22, 2008

“When the United States, the leading importer of Latin American goods, struggled through a recession in 2002, six of Latin America’s most prominent currencies dropped by 20% or more. But the story for 2008 has been very different.” — Jason Simpkins

by Jason Simpkins

Baltimore – (TFN): Concerns about the U.S. economic slowdown are starting to blunt some of the optimism surrounding Latin American economies. And while some of the more-timid investors are already retreating from the region, the actual panic some are experiencing is premature, as Latin American economies are demonstrating a much stronger resilience than they’ve been given credit for.

A report from the International Monetary Fund, released Friday, noted that “the region’s banking systems have so far remained largely immune to the financial stresses in the United States,” but financial conditions are “beginning to show some signs of tightening.” Ultimately, the IMF expects the turmoil in the United States to start catching up with Latin America.

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Foreign Investment: Latin America will follow the U.S.?

U.S. economic growth is expected to fall to 0.5% this year and be just 0.6% in 2009. The IMF sees growth in Latin America slowing as a result. After regional growth hit 5.6% last year (2007), the IMF thinks growth will fall to 4.4% this year and 3.6% in 2009.

History supports the IMF’s position. An economic slowdown - or worse, a recession in the United States - was once the death knell for Latin American economies, which rely heavily on America as a market for their exports. When the United States, the leading importer of Latin American goods, struggled through a recession in 2002, six of Latin America’s most prominent currencies dropped by 20% or more.

But the story for 2008 has been very different. Read on to learn more.

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