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Thu. June 20, 2024
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Financial Crisis Impact on Latin America
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By Adam Kott During the past week Congress has mulled over how to implement a bailout bill aimed at jump starting America’s struggling economy. The financial crisis of the last month has showed the world the fragility of a global economy. Three centuries ago an economic crisis in the United States would have been troublesome but not devastating for other nations. Today, as the world’s largest importer and exporter, the economic highs and lows of the United States reverberate worldwide. Both the burst of the subprime mortgage bubble and irresponsible lending, along with the failure of financial institutions such as AIG, Lehman Brothers, and Washington Mutual has left consumers feeling vulnerable. While Americans ponder which presidential candidate will leave the country in better hands, Latin America quietly waits for a quick solution before the economic slowdown becomes a worldwide phenomenon. Already the effects are being felt in Western Europe, and it seems only a matter of time before it reaches the developing nations of Central and South America. The indices of Mexico, Brazil, and Chile all dropped between .1 and 1% Friday despite the fact that Congress passed the bailout bill. Yet a U.S. stock market crash is not the biggest danger facing the Latin American markets. Today’s financial crisis will affect Latin America in two ways. Americans with less money will demand fewer consumer goods. This lowered demand will decrease the amount of imports from Latin America, running the risk of increased unemployment that is already estimated between 8-9%. Additionally, U.S. companies who have less money to spend abroad will eventually be forced to decrease their foreign direct investment . Although U.S. investment in South America may drop across the board, some will be hit harder than others. American business with Chile, Argentina, and Brazil has been strong in recent years so trade with these nations will be the least affected. Recent anti-American sentiments voiced by Evo Morales of Bolivia will certainly hurt investment in his nation. Additionally, Ecuador’s Rafael Correa may enact leftist economic policies such as the nationalization of certain resources in the near future. President Correa threatened to expel foreign oil companies in Ecuador if they did not increase their production. Venezuela is America’s fourth largest oil provider and for that reason trade will remain strong between the two countries although it seems odd that Hugo Chavez is content trading with a nation that he so regularly denounces as imperialistic. Overall it seems the best way that Central and South America can deal with the U.S. financial crisis is to look inward for support. By increasing trade with their close neighbors Latin America will be able to avoid some of the fallout of the crisis. There are already free trade agreements to encourage this such as CAFTA in Central America and Mercosur in South America. The cyclical pattern of the economy almost guarantees that the U.S. should will rebound into prosperity and enjoy increased global trade in the future, but in the mean time Latin America will have to find other trade partners to maintain its economic stability.

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