Peru, Colombia and Chile have been garnering a lot of international attention as they continue to show overall economic improvements driven by favorable public policies. Unfortunately, decelerating trade and lower commodity pricing are affecting both the trade balance and currency levels, particularly for Colombia and Peru where negative trade balances have resulted in a much higher level of imports than exports, and have caused notable currency depreciation. In the case of Chile, the currency deprecation has much more do to with global stress and weak GDP growth than it does with foreign trade figures, but it is also being affected. Still, these countries are performing well overall. In fact, interest rates for these countries remain moderate, running between 3% and 4.5%, their inflation figures are also in check, ranging between 3% and 4.5% as well, and GDP growth, while not as robust as it was a few years ago, ranges between 2.5% and 3.5%.
On a macroeconomic level, all of these countries are performing much better than Brazil. Brazil’s inflation rate is over 9.0%, its interest rates are currently at around 14%, and GDP is fairly weak at 1.7%. Driving these weak economic conditions are years of poor administration and political infighting between the executive and legislative branches. At the head of the turmoil is the Lavo-Jato (Car Wash) scandal, which involves accusations of bribery by top executives at the state-controlled oil company, Petroleo Brasileiro (Petrobras), who reportedly accepted money in return for the awarding of contracts to construction firms at inflated prices. Because political favoritism is the main source of job post nominations at state-owned companies like Petrobras, this money financed improper political campaigns and bought political favors. Despite this, Brazil is still attracting more investors than Peru, Chile and Colombia, due simply to the large size of its market, but also because there is much more business diversity, making it easier to minimize risks if the investment does not perform as expected.
Turning to Argentina, everything is centered on the elections this coming fall. The current economic model, which is anchored around strong agricultural exports, capital restraints and significant social welfare distribution, is often cited as the reason Argentina has stagnated for quite some time. A big turn-around is not expected, as Christina Kircherner’s approval ratings remain high, however, Mauricio Macri, the current head of the Government of the Autonomous City of Buenos Aires, is gaining some steam. His policies are more orthodox and market friendly than the opposition party, led by Deaniel Scioli. It’s difficult to discuss Argentina’s macroeconomic variables because official figures are hard to come by; in fact, it is generally believed that the government influences results. Instead, the private sector publishes non-official figures which are more widely used and accepted. At the moment, there is an official GDP growth rate of 0.5% for 2015 (vs. -0.5% in the non-official figure), and an18% inflation rate figure (vs. 28.6% non-official). This is clearly the largest under-performing major market in South America, and until the political climate is more transparent and capital restraints are relaxed, foreign investment as well as economic expansion will be subdued and the market will continue to erode. It should be noted, however, that this is true only for Argentina’s economic environment. All international firms are prohibited from sending capital back to their headquarters, so they have been acquiring real estate to prevent value-loss over time. This has resulted in a strong real estate market despite the weak economy.