LatinFinance - September/October 2015 - 34

through education and research will enable
the region to increase its competitiveness
in the global marketplace, while providing
a greater and more independent degree
of economic stability and prosperity, say
observers.
The right connections
Latin America's policy leaders have already
taken steps to open their economies to
new avenues of investment. While commodities and ex-regional exports remain
critical for many, some are also actively
recognizing the value of intra-regional

Source: Istockphoto

diplomacy, as it tries to sell oil to Cuba and
other Caribbean nations in the low-price environment. It has also exported oil to China
in return for loans. The Nicolás Maduro-led
government could default on its debt, analysts fear, leaving the country increasingly
dependent on credit from China, which has
loaned tens of billions of dollars to Venezuela in recent years.
More broadly, Latin America needs to
think beyond short-term remedies and
structurally revise fiscal, monetary and
policy frameworks to boost and sustain
growth, diversify economies and move

BUILDING BLOCKS: Latin America will
need to diversify trade away from commodities to achieve more growth

away from its reliance on commodities,
says Gabriela Santos, global strategist at
JPMorgan.
Peru understands the difficulties ahead.
It is already making efforts to move the base
of its economy away from mining, says the
country's finance minister, Alonso Segura.
"But clearly that's not enough," he adds.
"You have to improve the competitiveness
of the economy and improve the productivity of your factors of production."
With lower growth forecast and uncertain global macroeconomic forces, analysts
and economists are urging Latin America to
look within for the next stages of advancement. Integrating with neighbors, adopting
policies to attract private investment for
infrastructure development and fostering small and medium enterprises (SMEs)

34 L ATINFINA NCE.COM - September/October 2015

trade. Peru, Chile, Colombia and Mexico
formed the Pacific Alliance in 2011, with
the aim of using free circulation of goods,
services, capital and people to boost growth
and competitiveness. The Alliance will help
the countries diversify their trade network
throughout Asia and thereby insulate it
from the whims of a concentrated number
of trade partners, Hiroshi Watanabe, governor and chief executive officer of the Japan
Bank for International Cooperation, tells
LatinFinance (see page 46).
Central America is perhaps a vanguard
in the area of intra-regional trade for Latin
America. Approximately 25% to 35% of
present-day trade flow of Central American economies is conducted within the
region's borders, Nick Rischbieth, executive
president of the Central American Bank for

Economic Integration says (see page 42).
The Central American Common Market,
a free-trade zone established in the 1960s,
implemented a general system of tariffs.
Costa Rica, on the wealthier end of the spectrum in the micro-region, declared its intent
to join the Pacific Alliance last year.
"We have to think in terms of global value
chains and how to make use of our preferential agreements," Segura says, pointing
to the country's numerous global trading
agreements. "One of the main concepts of
integrating to the world is not to put your
eggs in one basket. We are seeking to open
markets, in general."
Chile and Mexico, meanwhile, highlight
the value of a manufacturing export sector.
While renowned for its mining trade, Chile
has a developing manufacturing sector
that currently benefits from a weak peso,
according to research from BBVA. The pair
benefit from the low cost of raw materials
and, as net oil importers, they continue to
enjoy low crude oil prices, which lowers the
cost of finished goods and makes them even
more globally competitive. Such diversity is
important for Chile's short-to-medium term
growth as the country's copper exports
were hit by weak spot prices and decreasing
Chinese demand. Despite the commodities
slide, Chile has adopted responsible macroeconomic policies, permitting the country
to increase its currency reserves during the
commodities boom. Chile has also diversified its exports through agriculture and
wine.
Colombia, which is set to out-perform
the region for GDP growth, has also varied
its export basket. Despite deriving 65% of its
exports from oil-related products, JPMorgan's Santos says Colombia's investment in
its coffee, flour and agricultural goods have
enhanced value and partially underpinned
the economy. Anne Van Praagh, chief credit
officer for public finance at Moody's, says
such measures toward diversity alongside
fiscal adjustment have enabled Chile and
Colombia to improve credit quality, a key
indicator when determining future growth.
While weak oil prices persist, however,
economies such as Venezuela and Argentina remain hamstrung. In Venezuela, inflation is running at about 65%, the agency
says. Argentina, on the cusp of presidential elections, has also been hit by rising
inflation as the local currency weakens.
Investment into its vast shale gas fields has
also simmered after government controls
increased the cost of imported equipment,
JPMorgan's Santos says, adding that for-

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