Friday, December 27, 2013

Latin America and Commodities

I've written about this so many times, but the news cycles on Latin American economies are predictable. Basically, you read about how awesome Country X is doing because of GDP and exports. Some time later, you will read how Country X faces an economic challenge of some sort. The structural causes are the same: dependence on commodities. That part generally is mentioned but remains unanalyzed.

So, for example, we hear that Latin American currencies are falling because demand for commodities is down:

Brazil’s real has lost 13 percent this year, extending its decline since the end of 2010 to 30 percent. The Chilean peso dropped to a two-year low on Dec. 3 and is down 9.2 percent this year. Mexico’s peso has declined the least, falling 1.2 percent, while the Colombian peso and Peruvian sol dropped more than 8 percent. Argentina’s peso, managed by the central bank through regular foreign-exchange market interventions, tumbled 24 percent, the most since 2002.

OK, but why did this dependence remain and diversification not occur when the money was flowing in? That is the interesting question, though I can understand why it's always omitted--the target audience for these articles consists of people who don't care. Their goal is making money, not promoting reform.


Otto 8:57 AM  

A single, small but decent example of why adding value in-country tends not to happen is the new Toromocho copper mine in Peru. Bought, constructed and owned by Chinese money (ie the Chinese State with a company logo on the front), the customers for its copper will be 100% China (natch), all shipped over the Pacific.

So, does it suit China to have the smelters to convert the concentrate into the pure metal in China, or does it suit China to build a new smelter in Peru and add value inside its host country borders? When put in this way it's a simple issue and as Peru is keen on investment dollars entering, it's in no position to insist or require the extra investment, unless it wants a significant lag in its investment portfolio.

Now note the delays Bolivia has had in its Uyuni lithium project, largely to do with getting a international partner to build the battery (etc) factory inside Bolivia if it wants the concession.

Theory: neolib growth objectives work against primary industry countries at the moment of adding value.

Randy Paul,  12:25 PM  

All I've heard for years is that the Brazilian government has wanted a weaker real to help the trade surplus and to discourage Brazilian's traveling overseas to make purchases, the latter of which has obviously been a massive failure as NYC is still bursting with Brazilians purchasing clothing, electronics and photo/video equipment.

The best example of excessive purchasing has to go to the 1994 World Cup team.

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