Trade Rumors

Don't let popular fears of an impending Latin American market crash get you down.
Magazine Contributor
3 min read

This story appears in the July 1999 issue of Entrepreneur. Subscribe »

When entrepreneurs bring up the subject of Latin America these days, a few common refrains emerge. "Brazil's problems are going to sink the whole region," someone prognosticates. "And this fall's elections in many countries will create chaos," another person adds. Before you can say, "Tranquilo," it's too late--everyone's in a collective tizzy.

A number of experts on the region, however, urge businesspeople to ease up on the panic. These analysts dispute the notion that Brazil's economic flux will unravel Latin America, and even suggest there's reason for cautious optimism.

"The idea that Brazil's problems will lead to pandemonium is simply inaccurate," says Michael Chriszt, a coordinator for Latin American research at the Federal Reserve Bank of Atlanta, who notes that these are his personal views and not necessarily those of the bank. Chriszt recently addressed the topic at a seminar sponsored by the Southern Center for International Studies, an international affairs think tank, saying, "The importance of Brazil has been overstated. The trade ties among Brazil and the rest of Latin America are rather limited."

In fact, statistics compiled by the Federal Reserve Board and the International Monetary Fund (IMF) show Mexico's exports to Brazil, for example, represent just 0.2 percent of its gross domestic product (GDP). Even Paraguay's exports to Brazil (50.9 percent of all Paraguay's exports) account for only 5.3 percent of the country's GDP. Although consensus forecasts from the Fed, IMF and JP Morgan show real GDP growth for the region dropping from 5.3 percent in 1997 to -0.8 percent by the end of 1999, when Brazil is removed from the figures, forecasts call for 0.9 percent growth this year. Meanwhile, Gary Hufbauer, a senior fellow at the Institute for International Economics in Washington, DC, points out that the stock market in Mexico was up 48 percent in April from December 1998 figures. Brazil also showed some recovery, with 10 per-cent growth during the same period.

Christopher D. Lancette is an Atlanta-based freelance journalist who covers international business for a variety of local, national and international publications.

The Hot Gets Hotter

So what do the pocket-protector gang's assessments mean for your business? "I'd say the outlook is pretty optimistic," Hufbauer says. "I think this year may offer good opportunities for smaller [U.S.] companies to find established partners in the region and get ready to move forward when the time comes."

That time could be as early as later this year and throughout 2000--after the fall elections in a number of Latin American countries.

According to Hufbauer, Colombia, Ecuador, Peru and Venezuela are countries to avoid in the next few years, while Argentina and Chile are among the good bets for the near future. Still, analysts say Mexico will remain the best place for U.S. entrepreneurs. John D. Negroponte, a former U.S. ambassador to Mexico, points to two hot areas in particular: manufacturing (particularly automotive) and services (especially in the financial and tourism fields). "The growth potential in the services area is enormous," says Negroponte, currently executive vice president for global markets of the McGraw-Hill Companies. "We've barely scratched the surface."

If the experts' assessments of Latin America as a whole prove to be accurate, there should be a whole lot of scratchin' going on by early next year.

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