Debt crisis, a situation in which a country is unable to pay back its government debt.

A country
can enter into a debt crisis when the tax revenues of its government are less than its expenditures
for a prolonged period
Latin American borrowing from US commercial banks and other creditors increased
dramatically during the 1970s. ... By late in the decade, however, the priority of the industrialized
world was lowering inflation, which led to a tightening of monetary policy in the United States
and Europe
The Latin American debt crisis (Spanish: Crisis de la deuda
latinoamericana; Portuguese: Crise da dívida latino-americana) was a financial crisis that
originated in the early 1980s (and for some countries starting in the 1970s), often known as La
Década Perdida, when Latin Americancountries reached a point where their foreign
debt exceeded their earning power, and they were not able to repay it.
During the 1980s—a period often referred to as the “lost decade”—many Latin American
countries were unable to service their foreign debt.

uring the 1970s, two large oil price shocks created current account deficits in many Latin
American countries. At the same time, these shocks created current account surpluses among oil-
exporting countries. With the encouragement of the US government, large US money-center
banks were willing intermediaries between the two groups, providing the exporting countries
with a safe, liquid place for their funds and then lending those funds to Latin America (FDIC
1997).1

Latin American borrowing from US commercial banks and other creditors increased dramatically
during the 1970s. At the end of 1970, total outstanding debt from all sources totaled only $29
billion, but by the end of 1978, that number had skyrocketed to $159 billion. By 1982, the debt
level reached $327 billion (FDIC 1997).

The potential risk of the growing involvement of US banks in Latin American and other less-
developed country (LDC) debt didn’t go unnoticed. In 1977, during a speech at the Columbia
University Graduate School of Business, then-Fed Chairman Arthur Burns criticized commercial
banks for assuming excessive risk in their Third World lending (FDIC 1997). Still, by 1982, the
nine largest US money-center banks held Latin American debt amounting to 176 percent of their
capital; their total LDC debt was nearly 290 percent of capital (Sachs 1988).

The near-zero real rates of interest on short-term loans along with world economic expansion
made this situation tenable in the early part of the 1970s. By late in the decade, however, the
priority of the industrialized world was lowering inflation, which led to a tightening of monetary
policy in the United States and Europe. Nominal interest rates rose globally, and in 1981 the
world economy entered a recession. At the same time, commercial banks began to shorten re-
payment periods and charge higher interest rates for loans. The Latin American countries soon
found their debt burdens unsustainable (Devlin and Ffrench-Davis 1995).

The spark for the crisis occurred in August 1982, when Mexican Finance Minister Jesús Silva
Herzog informed the Federal Reserve chairman, the US Treasury secretary, and the International
Monetary Fund (IMF) managing director that Mexico would no longer be able to service its debt,
which at that point totaled $80 billion. Other countries quickly followed suit. Ultimately, sixteen
Latin American countries rescheduled their debts, as well as eleven LDCs in other parts of the
world (FDIC 1997).

In response, many banks stopped new overseas lending and tried to collect on and restructure
existing loan portfolios. The abrupt cut-off in bank financing plunged many Latin American
countries into deep recession and laid bare the shortcomings of previous economic policies,
described by former Federal Reserve Governor Roger W. Ferguson, Jr. as based on “high
domestic consumption, heavy borrowing from abroad, unsustainable currency levels, and
excessive intervention by government into the economy” (Ferguson 1999).

Working Toward a Resolution: IMF and Central Bank Involvement

As transcripts from the July 1982 Federal Open Market Committee (FOMC) meeting illustrate,
committee members felt it was necessary to take action (FOMC 1982). In August, the Fed
convened an emergency meeting of central bankers from around the world to provide a bridge
loan to Mexico. Fed officials also encouraged US banks to participate in a program to reschedule
Mexico’s loans (Aggarwal 2000).

As the crisis spread beyond Mexico, the United States took the lead in organizing an
“international lender of last resort,” a cooperative rescue effort among commercial banks, central
banks, and the IMF. Under the program, commercial banks agreed to restructure the countries’
debt, and the IMF and other official agencies lent the LDCs sufficient funds to pay the interest,
but not principal, on their loans. In return, the LDCs agreed to undertake structural reforms of
their economies and to eliminate budget deficits. The hope was that these reforms would enable
the LDCs to increase exports and generate the trade surpluses and dollars necessary to pay down
their external debt (Devlin and Ffrench-Davis 1995).

Although this program averted an immediate crisis, it allowed the problem to fester. Instead of
eliminating subsidies to state-owned enterprises, many LDC countries instead cut spending on
infrastructure, health, and education, and froze wages or laid off state employees. The result was
high unemployment, steep declines in per capita income, and stagnant or negative growth—
hence the term the “lost decade” (Carrasco 1999).

US banking regulators allowed lenders to delay recognizing the full extent of the losses on LDC
lending in their loan loss provisions. This forbearance reflected a belief that had the losses been
fully recognized, the banks would have been deemed insolvent and faced increased funding
costs. After several years of negotiations with the debtor countries, however, it became clear that
most of the loans would not be repaid, and banks began to establish loan loss provisions for their
LDC debt. The first was Citibank, which in 1987 established a $3.3 billion loss provision, more
than 30 percent of its total LDC exposure. Other banks quickly followed Citibank’s example
(FDIC 1997).

By 1989, it was also clear to the US government that the debtor nations could not repay their
loans, at least not while also rekindling economic growth. Secretary of the Treasury Nicholas
Brady thus proposed a plan that established permanent reductions in loan principal and existing
debt-servicing obligations. Between 1989 and 1994, private lenders forgave $61 billion in loans,
about one third of the total outstanding debt. In exchange, the eighteen countries that signed on
to the Brady plan agreed to domestic economic reforms that would enable them to service their
remaining debt (FDIC 1997). Still, it would be years before the scars of the 1980s began to fade.

Lessons Learned

Despite the many warning signs that the LDCs’ debt level was unsustainable and that US banks
were overexposed to that debt, market participants did not seem to recognize the problem until it
had already erupted. The result was a crisis that required a decade of negotiations and multiple
attempts at debt rescheduling to resolve, at considerable cost to the citizens of Latin America and
other LDC countries.

In the United States, the chief concern was the soundness and solvency of the financial system.
To that end, regulators weakened regulatory standards for large banks exposed to LDC debt to
prevent them from becoming insolvent. On one hand, this regulatory forbearance was effective at
forestalling a panic. On the other hand, forbearance allowed large banks to avoid the
consequences of their prior lending decisions (albeit decisions that were to some extent officially
encouraged in the mid-1970s). But allowing those institutions to delay the recognition of losses
set a precedent that may have weakened market discipline and encouraged excess risk-taking in
subsequent decades.
The 1998–2002 Argentine Great Depression was an economic depression in Argentina, which
began in the third quarter of 1998 and lasted until the second quarter of 2002. [1][2][3][4][5][6] It
followed the 1974–1990 Great Depression after a brief period of rapid economic growth.[5]
The depression, which began after the Russian and Brazilian financial crises,[1] caused
widespread unemployment, riots, the fall of the government, a default on the country's foreign
debt, the rise of alternative currencies and the end of the peso's fixed exchange rate to the US
dollar.[1] The economy shrank by 28 percent from 1998 to 2002. [2][6] In terms of income, over 50
percent of Argentines were poor and 25 percent, indigent; seven out of ten Argentine children
were poor at the depth of the crisis in 2002.[1][6]
By the first half of 2003, however, GDP growth had returned, surprising economists and the
business media,[7][8] and the economy grew by an average of 9% for five years.[9][10]
Argentina's GDP exceeded pre-crisis levels by 2005, and Argentine debt restructuring that year
were resumed payments on most of its defaulted bonds; a second debt restructuring in 2010
brought the percentage of bonds out of default to 93%, though holdout lawsuits led by vulture
fundsremained ongoing.[11][12] Bondholders who participated in the restructuring have been paid
punctually and have seen the value of their bonds rise. [13][14] Argentina repaid its International
Monetary Fund loans in full in 2006,[15] but had a long dispute with the 7% of bond-holders left.
[16]
In April 2016 Argentina came out of the default when the new government decided to repay
the country's debt, paying the full amount to the vulture/hedge funds.[17]
In economics, a depression is a sustained, long-term downturn in economic activity in one or
more economies. It is a more severe economic downturn than a recession, which is a slowdown
in economic activity over the course of a normal business cycle.
Depressions are characterized by their length, by abnormally large increases in unemployment,
falls in the availability of credit (often due to some form of banking or financial crisis), shrinking
output as buyers dry up and suppliers cut back on production and investment,
more bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and
commerce (especially international trade), as well as highly volatile relative currency value
fluctuations (often due to currency devaluations). Price deflation, financial crises and bank
failuresare also common elements of a depression that do not normally occur during a recession.
In the United States the National Bureau of Economic Research determines contractions and
expansions in the business cycle, but does not declare depressions. [1] Generally, periods labeled
depressions are marked by a substantial and sustained shortfall of the ability to purchase goods
relative to the amount that could be produced using current resources and technology (potential
output).[2] Another proposed definition of depression includes two general rules:[3][4]

1. a decline in real GDP exceeding 10%, or

2. a recession lasting 2 or more years.

There are also differences in the duration of depression across definitions. Some economists refer
only to the period when economic activity is declining. The more common use, however, also
encompasses the time until the economic activity has returned close to normal levels.[1]
A recession is briefly defined as a period of declining economic activity spread across the
economy (according to NBER). Under the first definition, each depression will always coincide
with a recession, since the difference between a depression and a recession is the severity of the
fall in economic activity. In other words, each depression is always a recession, sharing the same
starting and ending dates and having the same duration.
Under that definition, Brazil has had its Hyperinflation only in four months, between Dec 1989
and Mar 1990. Yet, during all the 80’s decade and beginning of 90’s until July of 1994,
when Plano Real was put in action, the Brazilian inflation was very high. It was common two
digits monthly inflation. Sometimes that larger period is also referred as hyperinflation, when
technically it should be called something like very high inflation.

Brazilian high inflation was caused by several structural problems. Some of these structural
problems would take longer to discuss, but here are six simply of them:

1. Lack of Savings, as a developing country, Brazil needed (and still needs) a lot of
investment. Brazilian domestic savings, usually, are not sufficient to do all the
Investments our country need, so we must to get a expensive funding, domestically or
abroad.
2. Loose Fiscal Policy. Because of topic 1, internal interest rates in Brazil are usually
high, even when discounted by the high price inflation. That made our private investors
very careful and timid. So, it is easily assumed by many that the Government should be
the engine to drive the Investments. Therefore, not only by that, but also, our
government try do a lot of investment and justify it’s spending invoking the country
development, but even considering that, most of Brazilian Government spending is for
Consumption.
3. Brazil used to have more than one monetary authority, the Banco do Brasiland
the Brazilian Central Bank (BCB) played the same role sometimes. In addition, Banco
do Brasil and many state banks used to lend money to federal and state governments to
fund its expending. So, by it’s side, the BCB could try to control the Monetary Policy
but that used to be as useful as wiping ice. So Brazil also got by this way a loose
Monetary Policy.
4. Closed Economy with controlled currency trades. That used to push the exchange
rates whenever an insolvency crisis was approaching. And even in a closed Economy
that have impact in inflation. In Brazil mostly by leveling interest rates (to attract
International savings).
5. Points 2 to 4 combined put a lot of bad government spending, plus a lack of private
investments, to artificially upraise the aggregated demand. As the aggregated supply do
not expand at same rates, we got leveling of prices. Also, It was somewhat convenient
for the government to have high inflation because of a phenomenon called
as inflationary tax.
6. This whole framework contributed to Brazil's having a very unpredictable economic
policy, contributing to higher levels of uncertainty and therefore higher levels of profit,
interest, and price rates.
Many economists argue that the long period of very high inflation of Brazil was only possible
because we had an instrument called monetary correction (correção monetária), that worked as a
general indexation of all the prices of the whole economy. Wages were adjusted by last month's
inflation, rents, yields and several other contract prices are also adjusted by this way. I was a kid
at that time, and I remember that prices in US dollar used to be a reference to sell a thing without
lose lot of money, used to people to sell a car, a house or something. Most of the people who lost
with this very high inflation phase were wage earners without possessions, even with indexed
salary correction, every end of the month they lost a lot (in Brazil wages are typically paid by
month) and it was almost a dream to form savings that way.

The particular case of the hyperinflation in the four-month period specified above is closely
related to the electoral uncertainty that emerged in the late 1980s. In 89 the first democratic
presidential election after the military dictatorship was running, one of the candidates was Lula,
who at that time had opinions more strong to the left (state intervention, expropriation and so on)
than when he won in 2003.

The winner of presidential election was Fernando Collor de Mello (know only as Collor), no one
knew for sure what his government would be like and how would be the first Brazilian
democratic government after the new constitution of 1988, the hyperinflation of the early 1990s
was a reflection of these expectations that were acting at the time.

That is a very brief introduction, there are a lot more to know. One of the consequences of low
Brazilian investments is its the low productivity of capital and labor in our country, and many of
these aspects persists today. Particularly, Plano Real(which coined the present
Brazilian Real currency) faced the point 3, 4 and 5, and just a few of 2 and 6. We have a crazy
tax system and we are still a closed economy with lack of Investments. Points 1, 2 and 4 still not
solved.

HOW BRAZIL BEAT HYPERINFLATION

by Leslie Evans
Latin American Center | Research
FORMER HEAD OF BRAZIL’S CENTRAL BANK TELLS HOW THEY WON THEIR
TEN-YEAR FIGHT AGAINST 2000% INFLATION.
Imagine that your rent doubled every 10 weeks. That your credit card
charged 25% a month interest. That food and clothes went up 40% a IMAGINE THAT
month. That the value of your savings declined 2000% in a year! This was YOUR RENT
Brazil for ten years, from 1987 to 1997. During those ten years 40% of DOUBLED
GNP was eaten up by inflation, and everyone got rid of cash as fast as EVERY 10
possible, because it lost value in your pocket. No one saved money. And WEEKS.
the majority of people were reduced to buying only the essentials of life,
which devastated whole industries that produced all kinds of optional
goods and services.
But where did you start to restore normality? No one knew, and it took ten years of painful
experiment before state fiscal planners had tested, and discarded, all of the pet theories of the
IMF and the academic economists and devised a course of action to beat the monster. UCLA was
privileged to hear a report on this epic battle February 21 by Gustavo Franco, former governor of
Brazil’s Central Bank in 1997-99 and a key member of the economic team that worked for a
decade to find a policy that could restabilize the economy. The meeting, at UCLA’s Anderson
School of Management, was jointly sponsored by the Latin American Center’s interdisciplinary
Political Economy Group, the Center for International Business Education and Research, and
International Studies and Overseas Programs.
Dr. Franco, who holds a PhD in economics from Harvard, said that he had started his career
studying the reforms that ended hyperinflation in Brazil in the nineteenth century. “I thought this
was a dead subject. I couldn’t imagine that Brazil would experience this again. At that time we
had only 8 cases of hyperinflation in the history of mankind, half of these only after World War
II."

In the 1970s and even most of the 1980s Brazil was the economic miracle, so no one could
explain the onset of drastic price increases in 1987. Further, because the country adapted by
indexing prices, wages, and contracts to the price increases to keep a floor under buying power,
real comparative costs were soon difficult to sift out of the shifting plethora of figures. In
retrospect, Franco said, “The Brazilian state had begun to spend twice as much as its ability to
collect taxes. But it was difficult to see this from the numbers. Hyperinflation then produced
many funny theories about its causes. It took us 10 years to work through these to an actual
solution.”
The Tanzi Effect
The first theory planners tried to use was the so-called Tanzi Effect. This is named for IMF tax
expert Vito Tanzi, and was an article of faith for the IMF advisors. “Tanzi had proved in
Argentina that the longer the lag between sending out the tax bill and receiving people’s tax
payments, the lower the value of the collection,” Franco said. At root this approach looks to
balance government revenue with government spending. It presumes that spending is inelastic
and the problem is to keep revenue levels up. In Brazil, however, while there was some evidence
of the Tanzi Effect, government income and expenditure were not badly out of balance--at
2000% per year inflation both were expanding together. “Especially after democracy in 1985 and
the new constitution in 1988, every possible desire of social groups could be transformed into a
budget allocation. It was written into the constitution that health care would be free, that
university education would be free. But these desires did not match tax possibilites. What we got
was the unspeakable taxation of inflation. Instead of satisfying desires we only created a debt
level of desires.”
The spiral worked this way: “Contractors would be paid with checks that had declined in value
by 30% in the time it took to deposit them in the bank. Next time, the contractor doubled his
price. In this way all prices became inflated. Public servants demanded preemptive wage raises
to offset inflation. Other sectors sought to earmark a percentage of the state budget, as in 15% for
education, as protections.”
In addition to the expansion of the central and state government budgets, official government
banks began to finance “off-budget” expenditures by buying up central and state bonds. “We had
5 federal banks, several commercial banks, 23 state banks, a developoment bank, and sometimes
a mortgage bank. Half the banking system was official. The state Monetary Council began to
take prized areas such as agriculture out of the state budget, where there was a dogfight going on,
and putting them into the official bank budgets.” Banks started to loan money to continue
programs that had formerly been funded by the state budget. “The loans, however, were no good,
as they were eaten up by inflation by the time they were repaid.”
There was universal public agreement--in congress, in academe, and the press-- "that we did not
have a fiscal problem, i.e., that the state budgets were not causes of the price rises. Technically
this was true, the state technically had only a small deficit or even a small surplus. The
mysterious hyperinflation continued, but it was presumed that its causes did not rest in fiscal
policy."
Inertial Inflation
When balancing the state budget to stop the Tanzi Effect did not slow down the inflation, the
planners then turned to another theory, called "inertial inflation." According to this theory,
championed by Pedro Malan, then chair of the Central Bank and today minister of finance, and
known as “Malan’s Law,” the problem was that no one would believe that prices could be
stabilized, so everyone insisted on tacking increases onto their prices or wages to hedge against
next month’s expected rises. The answer was to halt the inertial slide upward by a price freeze,
quickly followed by introducing a new currency. In the time it took people to get used to the
value of the new currency the memory of the values of previous contracts would be wiped out
and expectations cooled.
“In 1986 they changed the cruzeiro to the cruzado, in 1987 they adjusted the cruzado, but in
1988 they replaced the cruzado with the New Cruzado. In 1990 they changed the cruzado novo
back to the cruzeiro, back to the original currency. Then in 1992 we changed the cruzeiro to the
cruzero, and in 1994 adopted the Real Plan with the new currency called the real.”
But the trick failed. “Inertial inflation theory says inflation exists only because we had it
yesterday. We tried the same trick 5 times and it didn't work. We used a price freeze and currency
change, but it did not work.”
Orthodox Monetary Policy
The next idea was that the problem was printing too much money, one of the basic causes of
inflation. “We know from the textbooks that the money supply should equal the money demand.
The Central Bank continually set a ceiling for the size of the money supply. They always met
their target, but this was because the demand was falling—people were buying less--so the
money supply did not need to grow. These are reasons why our country of 150 million people
took 10 years following all of these theories and arguments to finally beat inflation."
How They Finally Did It
“Finally we started the Real Plan in 1993, and had to fight every element of the above doctrines.”
The number-one reason Gustavo Franco gave for ultimate success was a unique period where
none of the political forces of the country were able to intervene in the process to promote the
special interests that the state had become committed to supporting in the preceding decades.
President Fernando Collor de Mello was impeached in December 1992 and replaced by his vice
president, Itamar Franco. “Franco was not interested in economics and signed anything the
ministers would bring him. This was unbelievable, but it depoliticized the process.” Congress
was also sidelined by a major scandal in December 1994 in which 26 members of congress and
three state governors were implicated in diverting millions in federal funds into their own
accounts. “This kept them out of the discussion. This gave us a window of opportunity where the
politicians did not interfere.”
Gustavo Franco said frankly that “We empowered the treasury and the Central Bank to subvert
democracy.” People and their political representatives had voted to give themselves things they
could not afford. The finance ministry, treasury, and Central Bank, using a constitutional
amendment passed in 1994, simply did not implement the budget. “We changed the composition
of the CMN, the monetary authority, to be three members, the Central Bank minister, the finance
minister, and the planning minister. This closed of the off-budget spending, while the treasury cut
back on implementing the congressionial budget.” While congress had passed a budget that
authorized, say, $800 million reals for a project, the treasury chose to actually expend only $200
million.
The flood of bad loans from banks to fund government projects the government itself was no
longer underwriting was stopped by imposing criminal penalties! “We prohibited--made it a
crime--for a bank to lend money to one of its own shareholders. Bank officials in the private
sector did not even maintain checking accounts in their own banks, for fear of being prosecuted
if their check guarantee cards lent them funds to cover an overdraft. But the state banks could
lend to the government. Under the Real Plan we enforced the same rules on the state banks and
threatened the bank officials with jail if they lent money to the government. We criminalized a
major source of the inflation, especially where regional banks frequently bought government
bonds. We made that illegal.”
In mid-1994, some 40 banks were actually bankrupt through their lending to government
projects. “We began in December 1994 with the intervention in Banespa [Bank of the State of
Sao Paulo] and other state banks. Banespa was the largest state bank in the country with claimed
assets of $30 billion—but with real assets of a negative $25 billion.”
Monetary Reform
“To stop the spiral in the private sector we needed one more monetary reform. In those days, for
example, rent contracts called for readjustment according to that month's announced inflation
rate. This indexation permeated the private sector and had to stop. We responded by freezing
wages, but unlike the previous failed efforts, we left prices free. But we sought to break
accounting and payment away from the existing currency. We did this by creating an artificial
financial standard, the Unit of Real Value (URV). All prices were computed against this standard,
which aimed at de-indexing the economy.”
In July 1994 the URV was converted into an actual currency, the real. This policy, Franco said,
“Is relevant for what is going on in Argentina now.”
Price increase rates dropped dramatically from July 1994 onward. By 1997 they reached standard
international levels and the hyperinflation was over. In one important respect the process
Gustavo Franco and his associates followed departed not only from the accepted theories, but
also the accepted political process in such situations. “The key,” he concluded, “was to create an
impersonal mechanism, not to get into negotiations with parties and unions--or housewives
associations. You need market mechanisms. Dialogue doesn't work in this kind of situation.” The
assumption here was that each constituency, if consulted, would fight for its particular
entitlement, driving the state budget back up and keeping the price spiral virulent. Even business
was not offered a chance to insert their favorite demands into the solution. “No industry
associations were involved in tariff discussions. They wanted high tariffs, but we lowered them
to invite competition and discourage price raising.”
Date Published: 2/22/2002
Colombia is now experiencing what officials describe as its most severe economic crisis in 70
years, a result of low prices for exports, high domestic interest rates and drastic budgets cuts.
Figures announced this week show that the economy contracted by nearly 6 percent in the first
quarter of 1999, the largest decline in history, and that unemployment has risen to just under 20
percent, another unenviable record.

Every sector of the Colombian economy is suffering, but analysts are most concerned with the
decline of agriculture, weakened by an earthquake in the heart of the coffee-growing zone in
January and low prices for crops.

One of the most serious problems of the Colombian economy in the 1990s was the growing
fiscal disequilibrium, with fiscal balance in 1991 turning into fiscal deficit of -3.4 percent in
1998. In 1999, contrary to expectations, the sheer scale of economic recession further aggravated
the situation, with public revenue below projections and a public sector deficit of about
-6.0 percent. The deficit was reduced to -3.6 percent of GDP in 2000, which met the objective
that had been set with the International Monetary Fund.
The Goal:

Determine what types of partnerships are the best match for your strategic goals, increasing your
success in managing uncertainty, reducing risk, and driving growth

 In 2001, Venezuela became the first Hispanic country to enter into a “strategic
development partnership” with China, a relationship that was elevated to “comprehensive
strategic partnership” in 2014, and which now totals at least 790 investment projects in
Venezuelan territory. They range from infrastructure, oil, and mining to light industry and
assembly.

 China’s development projects in Venezuela have disappeared over the past 11 years,
mostly devoured by corruption or by the debt default that the South American country has
incurred with the Asian giant, which froze many direct investments.

 Loans from China to Venezuela reached at least $50 billion by 2017, with some
estimating the number to have been as high as $60 billion. (The uncertainty regarding the
figure is the result of opaque loans, split into payments of $2 billion and $5 billion each.)
Many parts of the region had favorable factor endowments of deposits of precious metals, mainly
silver, or tropical climatic conditions and locations near coasts that allowed for the development
of cane sugar plantations. In the nineteenth century following independence, many economies of
Latin America declined.[1][2] In the late nineteenth century, much of Latin America was integrated
into the world economy as an exporter of commodities. Foreign capital investment, construction
of infrastructure, such as railroads, growth in the labor sector with immigration from abroad,
strengthening of institutions, and expansion of education aided industrial growth and economic
expansion.[3] A number of regions have thriving economies, but "poverty and inequality have
been deeply rooted in Latin American societies since the early colonial era."[4]
As of 2016, the population of Latin America is 633 million people[5] and the total gross domestic
product of Latin America in 2015 was 5.3 trillion USD. The main exports from Latin America
are agricultural products and natural resources such as copper, iron, and petroleum. In 2016, the
Latin American economy contracted 0.8% after a stagnant 2015. [6] Morgan Stanley suggests that
this drop in economic activity is a combination of low commodity prices, capital flight, and
volatility in local currency markets.[7] The International Monetary Fund suggests that external
conditions influencing Latin America have worsened in the period from 2010–2016, but will
show growth in 2017.[8]
Historically, Latin America has been an export-based, with silver and sugar being the motors of
the colonial economy. The region remains a major source of raw materials and minerals. [9] Over
time, Latin American countries have focused on efforts to integrate their products into global
markets.[9] Latin America's economy is composed of two main economic
sectors: agriculture and mining. Latin America has large areas of land that are rich in minerals
and other raw materials.[9] Also, the tropical and temperate climates of Latin America makes it
ideal for growing a variety of agricultural products.[9]
Infrastructure in Latin America has been classified as sub-par compared to economies with
similar income levels.[10] There is room to grow and some countries have already taken the
initiative to form partnerships with the private sector to increase infrastructure spending. [11] The
main economies of Latin America are Brazil, Argentina, Colombia, Mexico, and Chile. These
economies have been given positive outlooks for 2017 by Morgan Stanley. [7] The Latin American
economy is largely based on commodity exports, therefore, the global price of commodities has a
significant effect on the growth of Latin American economies. Because of its strong growth
potential and wealth of natural resources, Latin America has attracted foreign investment from
the United States and Europe.
Importing and Exporting in Latin America’s Biggest Economies
by Team Latin America | Apr 18, 2019 | Argentina, Brazil, Colombia, LATAM, Mexico | 0
comments
Latin America’s GDP is set to grow in 2020 thanks to Latin America’s four biggest economies:
Brazil, Mexico, Argentina and Colombia. Forecasted GDP for all four countries is set to grow
next year, contributing to the region’s growth of 6% and beating the Asia-Pacific growth rate of
5.3%. That’s a significant vote of confidence for the region and has caught the attention of
investors and businesses worldwide.
Although Latin America economies have suffered various degrees of crises in the last decade,
2020 is the year for moving up. We look at importing and exporting opportunities in Latam’s
biggest four economies.
Brazil
As a member of BRICS, Brazil is one of four major powerhouse economies of the world.
Additionally, it is home to a great infrastructure and transportation system that facilitates trade.
The ability to modernise key sectors to become more efficient and productive is a business
opportunity for foreign businesses and entrepreneurs. The country, as a whole, is very open to
foreign investment regarding foreign ownership of businesses and visas.
Importing
Brazil’s top import countries are China, United States, Argentina, Germany and South
Korea. Top imports are machines, chemical products, refined petroleum, transportation and
plastics and rubbers.
Generally speaking, Brazil is not a large importing nation when compared with similarly sized
economies ($130 billion of imports vs $219 billion of exports). Given its large agricultural
export sector, many organic chemicals are imported to support growth. It is projected that Brazil
will account for 70% of the world’s arable land growth by 2050. Technologies and equipment
that can help maximise the production and efficiency of this land create opportunities for those
with agricultural technical expertise.
Exporting

Brazil is famous for its soybean production. Growers are able to command higher prices
due to high protein levels and non-genetically modified crops.
Top exported products from Brazil are mineral products (iron ore and crude petroleum),
soybeans, foodstuffs (nearly half is raw sugar, followed by coffee), transportation, metals and
animal meat. Brazil’s top export partners are China, the United States, Argentina, Netherlands
and Japan. 42% of Brazil’s export goods are exported to Asia.
Brazil is famous for its soybean production. Growers are able to command higher prices due to
high protein levels and non-genetically modified crops. Brazil is more dependent than ever on
China following its trade war with the United States, and China is now importing more soybeans
from Brazil than the US. A large dependence on the export of commodities means a change in
prices can wreak havoc on the economy. It is expected the country will look to expand other
export areas to mitigate risk in the event commodity prices drop. Opportunities exist to grow
other export sectors such as oil, gas and animal meat using technical expertise to increase
productivity.
Mexico
Trade and investment opportunities in Mexico are accessible and lucrative. Benefits include its
geographical location bordering the United States and Central America as well as a wealth of
FTAs which cover 46 countries. Key sectors including mining, manufacturing, agriculture and
tourism. Following NAFTA discussions, Mexico is looking to lighten its dependence on the
United States and strengthen relationships with other trade partners.
Importing
Mexico’s top imports are machinery (including electrical goods) vehicles, mineral products,
plastics and chemical products. Many of these products are transformed in Mexico and
reexported. Top import partners are United States, China, Germany, Japan and South Korea.
One area of opportunity for those looking at importing into Mexico lies in its exports.
Agricultural and manufacturing innovative technologies that aid productivity and improve the
quality of export goods will help strengthen its economy. There is potential for countries with
strong Research and Development competencies to invest in technology transfer and provide
support and education to Mexican firms.
Exporting
Top exports are machines (electric equipment and computers), vehicles, mineral fuels, fruit and
vegetable products and medical instruments. Mexico’s top export countries are the United States
(73%), Canada (5.2%), Germany (2.1%), China (2.1%) and Japan (1.3%).
Mexico has a cost advantage for specialized manufacturing over many other economies. It
therefore presents expansion opportunities for firms looking to secure low-cost production and
set up manufacturing facilities. For firms that manufacture goods using different inputs,
Mexico’s proximity to the United States can help to shorten supply chains.
The automotive industry in Mexico is growing every year. In 2017, 3.7 million units were
produced and exports to Asia and Europe grew 38% and 45%, respectively.
The automotive industry in Mexico is growing every year. In 2017, 3.7 million units were
produced and exports to Asia and Europe grew 38% and 45%, respectively. Volkswagen and
General Motors are just a few of the international brands who have set up manufacturing plants
in Mexico. The export opportunities for Mexican vehicles are plentiful.
Mexico’s exports are highly concentrated and dependent on the United States. Therefore, Mexico
is more susceptible due to shocks following changes in the US economy. Given the uncertainty
of the NAFTA negotiations, Mexico will look to shift its high trade dependence on the United
States in 2019. This opens opportunities for other nations to grab a slice of the pie.
Argentina
As part of MERCOSUR and home to free trade zones and special customs areas, Argentina
makes an appealing import and export destination. Furthermore, investor-friendly reforms and
policies make business in Argentina easier for foreign nationals and firms.
Importing
Argentina’s top imported products include machines (largely telephones), cars and vehicle parts,
chemical products, mineral products (including refined petroleum and petroleum gas) and
metals. Top import origin countries are Brazil, China, United States, Germany and Mexico.
Given the free trade zones and special customs area, Argentina acts as a gateway to South
America, particularly to other MERCOSUR countries. Importing products through these zones
can save on tariffs costs.

E-commerce is on the rise in Argentina, with the number of online shoppers, and their
spending, growing each year. 20 million Argentinians are expected to shop online by 2021.
E-commerce is on the rise in Argentina, with the number of online shoppers, and their spending,
growing each year. This presents opportunities for those interested in the development of online
vendor technologies and selling their products online. 20 million people are expected to shop
online by 2021 with the most popular payment method of credit cards, followed by prepaid
cards. The e-commerce platforms themselves need innovation in order to facilitate the industry’s
growth, as well as improvements to logistics. Furthermore, with 92% of the population living in
rural areas, the ability to deliver products quickly will further boost the use of e-commerce in
Argentina.
Exporting
Top exports for Argentina are foodstuffs (more than half is soy based), vehicles, cereal,
animal/vegetable fats and meat. Top export destinations are Brazil, the US, China, Chile and
Vietnam.
Meat was the fastest growing export category in 2018, followed mineral fuels, vehicles and fish.
Given Argentina has over 30 million hectares of arable land, the agricultural industry holds
promising prospects for those looking to secure high-quality products. Exports of Argentina’s
world-famous meat are on the up and as the fastest growing export category last year, lucrative
opportunities exist. Argentina beef exports are now able to be sent to the US after a 17-year ban.
Subsequently, the distribution of Argentinian beef in the United States is a growth destination for
Argentinian meat exports.
The oil and gas sector also hold opportunities for those with a competitive advantage in
hydrocarbon technologies. The government has lowered tariffs on the importation of equipment
that can facilitate the exploration and exportation of hydrocarbons.
Colombia
Importing
Colombia’s top imports are machines (high percentage broadcasting equipment), chemical
products, transportation, mineral products and metals. other big groups are foodstuffs, textiles
and medical instruments. Top countries for Colombian imports are United States, China, Mexico,
Brazil and Germany.
The importation of technology and equipment that supports the Colombian agricultural sector
has potential. A key sector to Colombian exports, a technology that can help the productivity,
efficiency and quality of the agricultural products and services is necessary. The Colombian
government also offers subsidies on the importation of agricultural equipment. Technology and
knowledge transfer as further develop the agriculture sector, leading to opportunities for
countries with expertise in this area.
Exporting
More than half of Colombia’s exports are mineral products (crude petroleum and coal briquettes)
followed by coffee, cut flowers, bananas, chemical products (incl pesticides) and gold. Top
export partners are united states, Panama, China, Netherlands, Mexico and Ecuador.

Legalized in August 2017, the medicinal cannabis market is expected to reach $243 billion
by 2025.
Colombia is being transformed into an export platform. Foreign firms such as Coca Cola are
setting up manufacturing plants to maximize Colombia’s geographical position as a gateway to
Latin America. Benefits such as cost-competitive and profitable business environment backed by
government support make manufacturing in Colombia a real opportunity.
Another export opportunity in Colombia is that of medicinal cannabis. A sector that was
legalized in August 2017, the market is expected to reach $243 billion by 2025. Which land and a
climate that is perfect for its cultivation, the government now issues licences for the legal
manufacture of medicinal cannabis. As legalization becomes more common throughout the
world, the export opportunities are huge.

Trade agreements are when two or more nations agree on the terms of trade between them. They
determine the tariffs and duties that countries impose on imports and exports. All trade
agreements affect international trade.

Imports are goods and services produced in a foreign country and bought by domestic residents.
That includes anything shipped into the country even if it's by the foreign subsidiary of a
domestic firm. If the consumer is inside the country's boundaries and the provider is outside, then
the good or service is an import.

Exports are goods and services that are made in a country and sold outside its borders.
That includes anything shipped from a domestic company to its foreign affiliate or branch.

Three Types of Trade Agreements

There are three types of trade agreements. The first is a unilateral trade agreement. It occurs
when a country imposes trade restrictions and no other country reciprocates.

A country can also unilaterally loosen trade restrictions, but that rarely happens. It would put the
country at a competitive disadvantage. The United States and other developed countries only do
this as a type of foreign aid. They want to help emerging markets strengthen strategic industries
that are too small to be a threat. It helps the emerging market's economy grow, creating new
markets for U.S. exporters.

Bilateral trade agreements are between two countries. Both countries agree to loosen trade
restrictions to expand business opportunities between them. They lower tariffs and confer
preferred trade status with each other. The sticking point usually centers around key protected
or government subsidized domestic industries. For most countries, these are in the automotive,
oil or food production industries. The United States has 14 bilateral agreements. The Obama
administration was negotiating the world's largest bilateral agreement.

It was the Transatlantic Trade and Investment Partnership with the European Union.
Multilateral trade agreements are the most difficult to negotiate. These are among three
countries or more. The greater the number of participants, the more difficult the negotiations are.
They are also more complex than bilateral agreements. Each country has its own needs and
requests

Effects

There are pros and cons to trade agreements. By removing tariffs, they lower prices of imports
and consumers benefit. But some domestic industries suffer. They can't compete with countries
that have a lower standard of living. As a result, they can go out of business and their employees
suffer. Trade agreements often force a trade-off between companies and consumers.

On the other hand, some domestic industries benefit. They find new markets for their tariff-free
products. Those industries grow and hire more workers.

Treaty (such as FTAA or NAFTA) between two or more countries to establish a free trade area
where commerce in goods and services can be conducted across their common borders, without
tariffs or hindrances but (in contrast to a common market) capital or labor may not move freely.
Member countries usually impose a uniform tariff (called common external tariff) on trade with
non-member countries.

Free Trade Agreements (FTAs) have proved to be one of the best ways to open up foreign
markets to U.S. exporters. Trade Agreements reduce barriers to U.S. exports, and protect U.S.
interests and enhance the rule of law in the FTA partner country. The reduction of trade barriers
and the creation of a more stable and transparent trading and investment environment make it
easier and cheaper for U.S. companies to export their products and services to trading partner
markets. In 2015, 47 percent of U.S. goods exports went to FTA partner countries. U.S.
merchandise exports to the 20 FTA partners with agreements in force totaled $710 billion. The
United States also enjoyed a trade surplus in manufactured goods with our FTA partners totaling
$12 billion in 2015.
The conservative wave (Portuguese: onda conservadora; Spanish: ola conservadora), or blue
tide, is a right-wing political phenomenon and revolutionary wave that emerged in mid-2010 in
South America as a direct reaction to the pink tide.[1][2]
Right-wing politics holds that certain social orders and hierarchies are inevitable, natural,
normal, or desirable,[1][2][3] typically supporting this position on the basis of natural
law, economics, or tradition.[4]:p. 693, 721[5][6][7][8][9] Hierarchy and inequality may be viewed as natural
results of traditional social differences[10][11] or the competition in market economies.[12][13] The
term right-wing can generally refer to "the conservative or reactionary section of a political party
or system".[14]
The political terms "Left" and "Right" were first used during the French Revolution (1789–1799)
and referred to seating arrangements in the French parliament: those who sat to the right of the
chair of the parliamentary president were broadly supportive of the institutions of the
monarchist Old Regime.[15][16][17][18] The original Right in France was formed as a reaction against
the "Left" and comprised those politicians supporting hierarchy, tradition, and clericalism.
[4]:693
The use of the expression la droite ("the right") became prominent in France after
the restoration of the monarchy in 1815, when it was applied to the Ultra-royalists.[19] The people
of English-speaking countries did not apply the terms "right" and "left" to their own politics until
the 20th century.[20]
"Pink tide" (Spanish: marea rosa, Portuguese: onda rosa) and "turn to the left"
(Spanish: vuelta hacia la izquierda, Portuguese: guinada à esquerda) are phrases used in
contemporary 21st-century political analysis in the media and elsewhere to describe
the revolutionary wave and perception of a turn towards left-wing governments in Latin
American democracies straying away from the neoliberal economic model. The shift represented
a move toward more progressive economic policies and coincides with a parallel trend
of democratization of Latin America following decades of inequality.
The Community of Latin American and Caribbean States (CELAC) is a regional bloc of 33 Latin
American and Caribbean states. It was formed at the Unity Summit, which consisted of the 21st
Summit of the Rio Group and the 2nd Latin American and Caribbean Summit on Integration and
Development (CALC), in the Mayan Riviera, Mexico on 23 February 2010. The organization
aims to unite all of the Latin American and Caribbean states in order to strengthen the political,
social and cultural integration of the region, improve its quality of life, stimulate its economic
growth, and advance the well-being of all of its people. CELAC is a successor of the Rio Group
and CALC.

33 member states: Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil,
Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Dominica, Ecuador, El Salvador,
Grenada, Guatemala, Co-operative Republic of Guyana, Haiti, Honduras, Jamaica, Mexico,
Nicaragua, Panama, Paraguay, Peru, Santa Lucia, Federation of Saint Kitts and Nevis, Saint
Vincent and the Grenadines, Suriname, Trinidad and Tobago, Uruguay, Venezuela.
CELAC is a regional bloc that aims to unite, strengthen, and promote the interests of Latin
American and Caribbean states. It is a successor of the Rio Group and the 2nd Latin American
and Caribbean Summit on Integration and Development (CALC).

CELAC is the result of several multilateral bodies established by Latin American countries to
seek peace, socio-economic development and integration region-wide. It was created in February
2010 at a meeting of the CALC, in Playa del Carmen, Quintana Roo - Mexico. Subsequently, at
the Summit of Caracas - Venezuela, December 2011, it was definitively established as CELAC.

CELAC is an instrument to implement and strengthen regional participation in multilateral

negotiation processes, extra-regional cooperation, and political dialogue towards the different
challenges of the current economic, social and political system aiming at an equitable
development.